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The Minimum Wage Hike: Hurting Those Who Need Help

Updated: Apr 13

We’ve written here recently about the bad effects a minimum wage hike would have for Arkansas. Given the news today that the minimum-wage increase ballot initiative will be on the ballot in November, we thought it would be a good idea to revisit some of our previous arguments against raising the minimum wage. Perhaps the most detrimental effect of an increased minimum wage is that it excludes low-skilled workers, especially minority workers, from the workplace. Economist Thomas Sowell has demonstrated that every census from 1890 to 1930 shows nearly equal labor force participation rates among whites and blacks. However, those numbers became drastically different once the minimum wage was implemented for the first time – while, not coincidentally, increasing black unemployment. In fact, the Davis-Bacon Act of 1931 was passed, in part, to expressly exclude black workers from the construction market and preserve more jobs for white workers. Further increases in the minimum wage have had the same effects on teenage unemployment in recent years as well. As economist Mark Perry has written:

During the 2002-2007 period when the minimum wage was $5.15 per hour, teenage unemployment exceeded the national jobless rate by about 11% on average. Each of the three minimum wage increases was accompanied by a 2 percentage point increase in the amount that the teenage jobless rate exceeded the overall rate, from 11% to 13% after the 2007 increase from $5.15 to $5.85 per hour, from 13% to 15% following the second hike to $6.55 per hour, and from 15% to 17% following the last increase to $7.25. The 17.5% “excess teen unemployment” in October 2009 was the highest on record, going back to at least 1972, and was almost 5 percent higher than the peak teen jobless rate gap following the last recession (12.7% in June 2003).

Of course, adverse effects on teenagers may seem irrelevant when a policy is aimed at aiding the poor. However, policymakers should consider that teenagers form work habits and gain essential skills during their first job experience. Many teenagers save the money they earn during the summers for college and other expenses that can increase their lifetime earning potential. Basic economics tells us that if government makes entry-level employment more expensive through a minimum wage hike, there will be less opportunity for low-skilled workers. Even David Couch, a Little Rock attorney allied with Give Arkansas A Raise Now, the group lobbying for a wage increase in Arkansas, hinted at this basic economic law this week. Couch was asked about the possibility of raising the minimum wage even higher — to $15 per hour, as Seattle did earlier this summer. Couch then said in a television interview:

Given the economy in Arkansas, the $15 minimum wage is probably not realistic. Because in this state … it would really harm small businesses.

This is a dangerous admission for an advocate of hiking the minimum wage to make — because it stands to reason that, if a $15 minimum wage would “really harm” small business, then a smaller minimum wage might harm small business too. While we’re glad that some minimum-wage hike advocates are finally beginning to grapple with the economic consequences of raising labor costs, it’s up to Arkansans in November to decide whether they want a future in which their friends and neighbors will be able to find entry-level work and gain valuable experience that will advance their careers.

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