Unintended Consequences

By William Shaut

The intentions of the government when they voted to raise the minimum wage was obviously to raise the quality of life, and the standard of living of millions and millions of Americans currently in unskilled or entry level positions. The unintended consequence is that the passage of the bill has led to the elimination of 550,000 jobs all the while opening up the possibility that the new wage levels should be revised downward. This was suggested in a new study from Ball State University.

The study included part-time workers that are monitored by the Bureau of Labor Statistics between the 1999 and 2009 decade. Their finding was that by raising the minimum wage to its current level of $7.25 @ hour in the middle of a recession has made it necessary for some businesses to stop or seriously cut back on filling vacant jobs or eliminate to job altogether according to Michael J. Hicks, director of Ball State’s Center for Business and Economic Research (CBER).

Some of the other findings in the study: – 67% of teenage minimum wage earners live in households with incomes at least twice the poverty level. – The adult workers in the study working for minimum wage have limited skills. – 66% of all adults in the study working for minimum wage have a high school education or less. – There is a benefit of the minimum wage keeping some of these folks out of the labor market until they can obtain additional education.

These are the recommendations from the study: – Put in place lower minimum wages for students and new hires could actually preserve jobs. – Utilizing the student minimum wage would allow employers to hire seasonal workers without having to pay the full cost of adult employment.

In addition: – Putting in a tenure based minimum wage would remove any disincentive for employers to hire unskilled job seekers. – Workers with no or low skills could be hired at lower wages and then be paid more after 90 to 100 days of employment. – This kind of a policy would allow more seasonal employment by the young folks, and permit the employers not to have to go through the expense of training unskilled workers.

“Both of the recommendations would put in place different tiers of job seekers” says Hicks “While this in not typically a desirable outcome of legislation, which has it’s own tiers of workers: those without jobs who would be willing to work at wages beneath the current federal minimum wage.”

Source: Michael J. Hicks, “Who Lost Jobs When the Minimum Wage Rose?” Ball State University, February 8, 2010

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