There is a misguided assumption by some policymakers in the California Legislature that raising the minimum wage will have a benign impact on the labor market. In fact, some experts go as far as saying that increasing the minimum wage will help the economy. However, years of research prove the contrary; raising the minimum wage harms small business owners and entry-level employees – the exact population that an increase is purported to help. (AB 10, if passed, would raise the minimum wage every year automatically; a hearing is scheduled for this week.)
Increasing the minimum wage discourages employers from hiring low-wage entry-level workers. One-half of minimum wage employees are younger than 25. Increases in the minimum wage reduce employment prospects for this entire demographic.
Study after study shows that minimum-wage increases do more harm than good. Low-income families are hit hardest by an artificial wage increase. Businesses are prevented from hiring low-income workers because of cost pressures. They turn instead to outsourcing and other mechanisms to run operations. Low-skilled workers are prevented from gaining valuable work experience, and entry-level workers also endure hardship with each obstacle instead of gaining a foothold to a lifetime of gainful employment. The reality is that entry-level income workers need job opportunities and some level of certainty about take-home pay.
Raising the minimum wage could have two very detrimental impacts. First, increasing the minimum wage will increase workers’ hourly rates; workers will take home less money at the end of the pay period if their employer reduces their hours to manage costs.
Added labor costs
Second, employers – especially small businesses with tight profit margins – will be forced to lay off employees due to added labor costs. The net effects of these actions are sure to only increase our state’s already high unemployment rate.
If business income decreases due to higher labor costs and unemployment goes up, tax revenues will decrease. There also will be an increased dependence on the state’s dwindling social services. That would not be welcome news for policymakers grappling with the $26 billion deficit.
While there are winners and losers in every policy proposal, it is clear that the losers in this case are young entry-level workers. According to the Bureau of Labor Statistics, the unemployment rate in March 2011 for African-American teens (both women and men) ages 16 to 19 was 42.1 percent nationally and 34.5 percent in California. With such extraordinary rates of teen unemployment, creating barriers to employment at this time should be unthinkable.