[Congressional Record Volume 145, Number 82 (Thursday, June 10, 1999)]
[Extensions of Remarks]
[Page E1228]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 INCREASING THE MINIMUM WAGE DECREASES OPPORTUNITIES FOR OUR NATION'S 
                                 YOUTH

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                        Thursday, June 10, 1999

  Mr. PAUL. Mr. Speaker, I highly recommend Bruce Bartlett's ``Minimum 
Wage Hikes Help Politicians, Not the Poor'', which recently appeared in 
The Wall Street Journal, to all of my colleagues. Mr. Bartlett's 
article provides an excellent overview of the evidence that an increase 
in the federally-mandated minimum wage reduces teenage employment. 
Since those shut out of entry-level work are unlikely to obtain higher-
paying jobs in the future, an increase in the minimum wage reduces 
employment opportunities for millions of Americans. This point was also 
highlighted by Federal Reserve Chairman Alan Greenspan in testimony 
before the Senate in January when he pointed out that ``All the 
evidence that I've seen suggests that the people who are the most needy 
of getting on the lower rungs of the ladder of our income scales, 
develop skills, getting the training, are unable to earn the minimum 
wage. As a consequence, they cannot get started. And I think we have to 
be very careful about thinking that we can somehow raise standards of 
living by mandating an increase in the minimum wage rate.'' I hope all 
of my colleagues will carefully consider how increasing the minimum 
wage decreases opportunities for our nation's youth and refrain from 
reducing economic opportunity for those at the bottom of the economic 
ladder by raising the minimum wage.
  Bruce Bartlett is senior fellow at the NCPA. He was Deputy Assistant 
Secretary for Economic Policy in the Treasury Department from 1988 to 
1993, and Senior Policy Analyst at the White House from 1987 to 1988. 
He is an expert commentator on taxes and economic policy, the author of 
two books and, a syndicated columnist. His articles have appeared in 
many papers including The Wall Street Journal and The New York Times. 
He regularly appears on national television and radio programs.

           Minimum Wage Hikes Help Politicians, Not the Poor

                          (By Bruce Bartlett)

       It now appears likely that the Republican Congress will 
     soon raise the minimum wage for the second time in three 
     years. In 1996 the minimum increased to the present $5.15 an 
     hour from $4.25; the increase now being considered would 
     bring the figure up to $6.15 by 2002. This is bad news, for 
     as many as 436,000 jobs may disappear as a result of the 
     increase.
       During the last debate, two arguments were advanced in 
     favor of raising the minimum wage. The first claimed that the 
     minimum wage had fallen sharply in real (inflation-adjusted) 
     terms since the previous increase in 1991. But with inflation 
     having all but vanished in the 19 months since the last 
     increase, this argument does not hold true today.
       The second argument, based almost exclusively on a 1995 
     study by economists David Card and Alan Krueger, was that 
     raising the minimum wage actually reduced unemployment. Since 
     then, however, virtually every study done on the subject has 
     confirmed longstanding research showing that raising the 
     minimum wage invariably has a negative impact on employment, 
     particularly among teenagers and minorities.
       The federal minimum wage was first enacted in 1938, but 
     applied only to the small minority of workers who were 
     engaged in interstate commerce. The first data we have on 
     teenage unemployment are from 1948. From then until a 
     significant expansion of the minimum wage in 1956, teenage 
     unemployment was quite low by today's standards and was 
     actually lower for blacks than whites. Between 1948 and 1955 
     unemployment averaged 11.3% for black teenage males and 11.6% 
     for whites.
       Beginning in 1956, when the minimum wage rose from 75 cents 
     to $1, unemployment rates between the two groups began to 
     diverge. By 1960, the unemployment rate for black teenage 
     males was up to 22.7%, while the white rate stood at 14.6%.
       Despite such evidence, supporters continued to push for 
     ever higher and more inclusive minimum-wage rates, which were 
     raised almost yearly between 1961 and 1981. At each point the 
     unemployment rate for black teenagers tended to ratchet 
     higher. By 1981, the unemployment rate for black teenage 
     males averaged 40.7%--four times its early 1950s level, when 
     the minimum wage was much lower and its coverage less 
     extensive. That year, the federally-mandated Minimum Wage 
     Study Commission concluded that each 10% rise in the minimum 
     wage reduces teenage employment by between 1% and 3%.
       Subsequent research, based on the effects of the previous 
     two minimum-wage increases, continues to confirm this 
     estimate. A study of the 1990-91 increases, which raised the 
     rate by 27%, found that it reduced overall teenage employment 
     by 7.3% and black teenage employment by 10%. Similarly, a 
     study of the 1996 increases found a decline in employment of 
     between 2% and 6% for each 10% increase in the minimum wage.
       In a study published by the Federal Reserve Bank of San 
     Francisco, economist Kenneth Couch Translated these 
     percentages into raw numbers. At the low end of the range, at 
     least 90,000 teenage jobs were lost in 1996 and another 
     63,000 jobs lost in 1997. At the higher end, job losses may 
     have equaled 268,000 in 1996 and 189,000 in 1997. He 
     estimates that a $1 rise in the minimum wage will further 
     reduce teenage employment by between 145,000 and 436,000 
     jobs.
       The fact is that the vast bulk of economic research 
     demonstrates that the minimum wage has extremely harmful 
     effects on the very people it is designed to aid--the poor:
       The minimum wage unambiguously reduces employment. The 
     September 1998 issue of the Journal of Economic Literature, 
     an official publication of the American Economic Association, 
     contains a survey of labor economists on the employment 
     effects of the minimum wage. When asked to estimate the 
     impact of raising the minimum wage, the average effect was 
     estimated at minus 0.21%, meaning that a 10% rise in the 
     minimum wage will reduce overall youth employment by 2.1%. 
     This puts to rest any notion that economists have changed 
     their view that in general higher minimum wages reduce 
     employment.
       Increases in the minimum wage have a disproportionate 
     impact on teenagers and the poor. The minus 2.1% figure cited 
     above is an overall impact. For those currently earning less 
     than the new minimum wage, the impact is much greater. For 
     example, prior to the 1996 increase, 74.4% of workers between 
     the ages of 16 and 24 already earned more than $5.15, and 
     4.3% were legally exempt from the minimum wage law. Thus the 
     employment losses were concentrated among the 21.3% of 
     workers making the minimum wage or slightly more. When one 
     attributes total employment losses entirely to this group, it 
     turns out that the employment loss figure is minus 1%, 
     according to economists David Neumark, Mark Schweitzer and 
     William Wascher. This means a 10% rise in the minimum wage 
     reduces employment among this group by 10%.
       Increases in the minimum wage add almost nothing to the 
     incomes of poor families. There are two reasons for this. 
     First, employment losses reduce the incomes of some workers 
     more than the higher minimum wage increases the incomes of 
     others. Second, the vast bulk of those affected by the 
     minimum wage, especially teenagers, live in families that are 
     not poor. Thus a study by economists Richard Burkhauser and 
     Martha Harrison found that 80% of the net benefits of the 
     last minimum-wage increase went to families well above the 
     poverty level; almost half went to those with incomes more 
     than three times the poverty level. (The poverty level is 
     about $17,000 for a family of four.)
       The minimum wage reduces education and training and 
     increases long-term unemployment for low-skilled adults. 
     Messrs. Neumark and Wascher found that higher minimum wages 
     cause employers to reduce on-the-job training. They also 
     found that higher minimum wages encourage more teenagers to 
     drop out of school, lured into the labor force by wages that 
     to them seem high. These teenagers often displace low-skilled 
     adults, who frequently become semipermanently unemployed. 
     Lacking skills and education, these teenagers pay a price for 
     the minimum wage in the form of lower incomes over their 
     entire lifetimes.
       A raise in the minimum wage has always been an easy sell in 
     Washington. But whatever the political realities may be, it's 
     still a bad idea.

     

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