- Friday, December 19, 1997 -- North Shore News

‘Minimum wage hikes hurt the poor

Fazit Mihlar
Fraser Institute Columnist

UNTIL 1994 there

appeared to be consen-
sus among economists

that minimum wage
faws kill jobs and there-
fore do not help
- unskilled and youth

- workers.

‘However, since the publi-
cation of a revisionist article
based on the 1992 New Jerscy
* minimum-wage increase and
its seemingly positive employ-
ment impacts by Princeton
University’s David Card and
Alan Krueger, many anti-
poverty advocates and liberal
political and economic com-
mentators have been urging
' ‘politicians to increase mini-
‘um wages

In Brash Columbia, the
‘government has announced
yet another increase in the |
‘minimum wage.

-.,. This policy prescription,
«however, will be disastrous for
the poor. Any careful analysis
- of the data shows thar mini-
mum wage increases do kili

Be
acd. the. effects ofan 18%
‘ incréase. in New-Jersey’s mini-
mum wage in 1992..by inca: |

uary : :
They used a group of
" restaurants in eastern
Pennsylvania : as their““con--
trol”, group, where there .was
. he increase in Tee minhnum |

:. minimum’ wages, employment
~** “increased by 2.5 employees
_s-per restaurant compared to
the control group in
-* Pennsylvania.
“A detailed analysis of the:
“data done by the Employment
Policies Institute, however,

”' found thiae the official payroll
data does not match the Card-
Krueger data.

Using this data, Michigan’
State-University economist
’ David Neumark and William
’. Wascher of the Federal
. Reserve Board figure that the
actual impact of the 18%
, increase in the minimum wage
: tne reduce employment by

june i Neumark
a tina 1992 study.

‘Analyzing state panel data
“for the period 1973-1989,
they conclude that a 10%
increase in the minimum wage
causes a decline in employ-
ment of 1% to 2% for
teenagers, and 1.5% to 2% for
young adults. In 1993, Bruce:
Fallick of UCLA and Janet
Currie of MIT concluded that
teenagers were more likely to
lose their jobs if the minimum
wage was raised.

According to a 1995 study
by Neumark and Wascher,
increases in the minimum
wage raise the probability that
~ teenagers wil leave school in
search of employment.

However, by pricing
teenage labor, which tends to
be less productive, out of the
market, higher minimuin
wages effectively guaranice
that these teenagers will not

find work. Hence, minimum
wage increases hurt teenagers
in two ways: it encourages

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thers to leave school and
increases their chances of
being unemployed.

In Canada, a study by
Pierre Fortin found that the
disemployment effects of min-
imum wages had reduced the
carnings of those that the
minimum wage law intended
to help. The minimum wage
increase also led to shorter
working weeks and increased
use of part-time workers.

Areccent study by Ernst
and Young found that a 10%

izcrease in real minimum
wages decreases employment
in sensitive industries or
demographic groups by 1% to

%. Indeed, the study points
cut that when adult minimum
wages in B.C. were increased
trom $5.50 to $6 per hour in
1993, employment in the
B.C. restaurant industry fell
by 3%.

Anti-poverty groups argue
that higher minimunt wages
increase a welfare recipient's
incentive to work. The evi-

dence, however, paints a dif-
ferent picture.

A 1995 study by Peter -
Brandon of die University of
Wisconsin found that increases
in tninimum wages reduce
labor force participation by
single mothers wi ho receive
welfare.

All of this evidence sug-
gests that minimum wage laws
hurt the intended beneficia-
ries, specifically, unskilled

-workers and the youth. This is

the real research record, and

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2 _ Public involvement and Consuttation

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= Satety and Environment

the evidence that should guide
policy making in Alberta,
Bridsh Columbia, and else-
where in the country.

— Fasil Mihlar ts a senior
policy analyst at the Vancouver-
based Fraser Institute.

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