Minimum Wage Equals Minimum Opportunity
Contact:
Suzane Walters, Director of Communications
The Fraser Institute, (604) 714-4582, Email: Email suzannew@fraserinstitute.caRelease Date: 9 February 1999
VANCOUVER, BC>>> Increasing the minimum wage is a quick fix panacea that hurts the very people it purports to help, says a new paper, The Economics of Minimum Wage Laws, released today by The Fraser Institute
"Most economists would likely agree that high minimum wages reduce employment opportunities for young and unskilled workers. Most would probably also argue that high minimum wages do not necessarily raise the incomes of the poorest members of society. Yet, in spite of this consensus, the minimum wage continues to be touted by politicians and policy-makers as an effective way to help the poor," says Marc Law, author of the study.
The idea that high minimum wages are a form of income redistribution is simply incorrect. Because the majority of minimum wage earners are young and unskilled, but not necessarily poor (think of all the teenagers greeting you behind the counter at your local fast food restaurant), the effect of the minimum wage is instead, to, transfer resources to those who are already relatively well off.
Recent studies indicate that the majority of men earning minimum wage (72.4%) tend to be 24 years old or younger, while more than one-half of women earning minimum wage (57.7%) are in the same age group. Nearly 60% of young women earning minimum wage were identified as living at home with their parents, while 64% of young men also lived at home. Not surprisingly, the combined clerical, sales, and service sectors were the largest minimum wage employers, accounting for 63.5% of all men earning minimum wage and 82.9% of women.
In addition to its failure as a means to redistribute income, a hike in the minimum wage often raises the price of goods that tend to be consumed by poorer families and therefore an increased minimum wage can make the needy even worse off. By changing the dynamics of the labour market, higher minimum wage are unlikely to raise the incomes of the poor. Instead, they are likely to reduce employment opportunities for the unskilled and raise the incomes of certain low-wage workers who do not necessarily come from low-income families.
Economists have argued convincingly that a better way to transfer income to the needy would be through direct cash subsidies via the tax system rather than by imposing a price floor that distorts the workings of the labour market.
Increases in the minimum wage—instituted recently in BC, Alberta, and the United States—reduce employment opportunities for young and unskilled workers. Indeed, studies suggest that a 10 percent increase in the minimum wage reduces the rate of employment among teenagers by 2 to 4 percent, and among young people (ages 15-25) by 1 to 3 percent.
And the economic impacts go far beyond employment levels. Studies suggest that increases in the minimum wage produce other adverse effects, including reduced on-the-job training, fewer benefits, higher school dropout rates and reduced levels of skills development which ultimately lead to lower levels of future productivity and lower standards of living.
The study provides a snapshot of the types of workers earning minimum wage and the types of work they do. Workers earning minimum wage are disproportionately young, disproportionately female, and generally have fairly low levels of education. Jobs are usually in the service and sales sector, tend to be of short duration and are generally with smaller firms.
"By raising the minimum wage, politicians can appear to act in the interests of the poor without actually spending taxpayers’ dollars. The costs of the minimum wage are borne by those who are unable to find work at the higher wage and by firms who must now pay more for labour. The benefits accrue to those workers able to retain employment at the higher wage, and politicians who can claim credit for raising the incomes of the needy," concludes Law.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information, or for a copy of The Economics of Minimum Wage Laws, contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
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