Economics Jobs Welfare State

The Proof is In – Government Raising the Minimum Wage is Disastrous for the Economy!

Six years ago Friday marked the last time since the federal minimum wage was increased, and now with talks of raising it again, here is a look back at its impact.

The federal minimum wage was increased to $7.25 per hour on July 24, 2009 as part of a three step plan. The Fair Minimum Wage Act of 2007 first increased the federal minimum wage to $5.85. After that it automatically increased to $6.55 in 2008 before finally landing on $7.25 per hour in 2009. The hope was it would help to reduce poverty.

“This well-deserved increase will help workers better provide for their families in the face of today’s economic challenges,” then-Secretary of Labor Hilda L. Solis said in a statement. “I am especially pleased that the change will benefit working women, who make up two-thirds of minimum wage earners.”

A renewed push to raise the minimum wage has taken hold in recent years, with unions asking for $15 an hour and President Barack Obama looking at a more moderate $10.10 an hour. Democratic presidential hopeful and self-described socialist Bernie Sanders introduced a bill Wednesday to raise the federal minimum wage to $15 an hour.

“And that’s why the President has made it a policy priority to try to find ways to make sure that American workers are getting paid fairly,” White House Press Secretary Josh Earnest said recently. “So one way we can do that is to raise the minimum wage.”

The aftermath of the last increase in 2009, however, was not all that good. Though some people found themselves in a better financial situations, others were left much worse.

“Most of them would receive higher pay that would increase,” stated a 2014 report from the Congressional Budget Office (CBO). “But some jobs for low-wage workers would probably be eliminated.”

The CBO report looked at the 2009 increase along with other local incentives. While states cannot go below the federal minimum wage, many have decided to go above it. A report from American Enterprise Institute (AEI) found the impact is much worse for young and low skilled workers.

minimum wage“When the minimum wage rose by 41% between 2007 and 2009 – it had a disastrous effect on teenagers,” the AEI report detailed. “The jobless rate for 16-19 year olds increased by ten percentage points, from about 16% in 2007 to more than 26% in 2009.  Of course, the overall US jobless rate was increasing at the same time, from about 5% to 10%.”

The National Bureau of Economic Research (NBER) and The Heritage Foundation also both found employment opportunities for young and low skilled workers falls when the minimum wage goes up. Not all economists, however, are in agreement about the negative impact of raising the minimum wage. A 2013 study from Center for Economic and Policy Research (CEPR) found the impact on employment would be small at best.

“Two recent meta – studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low – wage workers,” the CEPR report found. “The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to t he wages paid to low – wage workers.”

Some, like Democratic Sen. Ben Cardin, have even claimed increasing the minimum wage makes employment go up. Those claims though have been mostly disproved. The nonpartisan PolitiFact has called the statement mostly false.

Nevertheless, raising the minimum wage may not even be necessary to address poverty. The Illinois Policy Institute (IPI) found most workers are able to move beyond the minimum wage after only a year of employment.

“Of those workers making the minimum wage today, two-thirds will be earning a higher wage one year from now,” an IPI report by Naomi Lopez Bauman stated. “Most workers, once they learn the job and demonstrate a level of competence, will earn more as the value of their labor increases to their current employer or a competing one.”

Americans for the most part overwhelmingly support raising the minimum wage. According to Gallup, upwards of 76% of people favor raising it to $9 an hour while 22% opposed the idea.

 

Source

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by EagleRising.com


About the author

Onan Coca

Onan is the Editor-in-Chief at Liberty Alliance media group. He's also the managing editor at Eaglerising.com, Constitution.com and the managing partner at iPatriot.com. You can read more of his writing at Eagle Rising.
Onan is a graduate of Liberty University (2003) and earned his M.Ed. at Western Governors University in 2012. Onan lives in Atlanta with his wife and their three wonderful children.

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