Minimum wage and unemployment

An increase in the former causes an increase in the latter.

By Doug French
  • Thursday, June 26, 2008

One wonders if any of the almost 400,000 voters (nearly 69 percent) who said "yes" to a higher minimum wage in Nevada in the November 2006 election are having any second thoughts.

Maybe those who have kids hanging around the house because they can't find a job this summer are beginning to connect the dots.

Employment for everyone is becoming more and more tenuous, with Nevada's unemployment rate reaching 6.2 percent in May – a huge increase from the May 2007 rate of 4.7 percent. According to the Nevada Department of Employment, Treatment and Rehabilitation, the number of unemployed has increased nearly 46 percent from a year ago.

But for teens seeking that elusive first job, the situation is even worse. The Associated Press reports that nearly 19 percent of all teens aged 16 to 19 are unemployed.

And with the minimum wage in Nevada increasing to $5.85 for employees with health care benefits and to $6.85 for those without on July 1, employment prospects for the young and unskilled will not get any better. And there is no end in sight. Nevada's minimum wage will ratchet upward with increases in the federal minimum wage and with increases in the consumer price index (CPI).

"Raising minimum wages forces employers to dismiss (or not hire) low productivity workers," explains D.W. MacKenzie, who teaches economics at SUNY Plattsburgh. "This policy has the largest effect on those with the least education, job experience and maturity. Consequently, we should expect minimum wage laws to affect teenagers and those with less education."

When economic times are good, minimum wage supporters will say, MacKenzie's analysis is just out-of-date economic theory. Unemployment is low for everyone. However, boom times temporarily mask the effects of economic laws. Now that the boom has busted, the bitter truth is exposed. For instance, only 15 percent of black teenagers in central cities have jobs, noted a recent Las Vegas Review-Journal article.

In fact, employment for teens generally is down considerably since 2000, according to the same report. "The rate of teens who had jobs last year was the lowest in more than half a century," according to Andrew Sum, director of the Center for Labor Market Studies at Northeastern University.

Of course, this is good news to labor unions and government bureaucrats. Economist Walter Williams explains in his book The State Against Blacks that if a fence can be erected by either using one skilled worker costing $38 per day, or three unskilled workers costing $13 each per day, a firm will use the skilled worker because the cost is less ($38 versus $39). Williams points out that skilled workers soon realize that if minimum wage laws are enacted to, say, $20 per day (for this example), then the skilled worker can demand up to $60 per day without losing his job. "Thus the effect of the minimum wage is to price the high skilled worker's competition out of the market," Williams summarizes.

Unions representing highly skilled workers therefore are the major supporters of minimum wage laws. Williams points out that because unions support reducing employment opportunities, they also support government public assistance programs. "Income subsidy programs have disguised the true effects of restriction created by unions and other economic agents by casting a few crumbs to those denied jobs in order to keep them quiet, thereby creating a permanent welfare class," Williams writes.

Marie Coger, operations manager at Premier Staffing Solutions in Las Vegas, echoes Williams' point, telling the Review-Journal that when teenagers can't find work, they "miss out on the key life experiences that come with a first job." And it's kids from low-income households who have the hardest time getting jobs. Teens from middle- and upper-income households are more successful because of their parents' connections.

Because of the punk economy, lower-income teenagers who lack those connections end up competing with older workers who have been laid off from better-paying, higher-skilled jobs and retirees who need to supplement their retirement incomes. Coger points out that employers will hire the experienced employees over youngsters, because "[t]hey're going to get an experienced worker who comes in for the same price as someone else they would have to train."

Nevada voters ignored the fact that minimum wage increases adversely affect the very people the law is supposed to help. Politicians in Washington should repeal minimum wage laws, especially for teenagers, and Nevada voters should follow suit.

Doug French is a policy fellow of the Nevada Policy Research Institute.

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