Washington is the Worst Place to set a Minimum Wage

Jul 25 2014

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Supporters of federal minimum wage legislation portray it as an antipoverty device, claiming that it has no adverse employment effects. Some empirical studies even find no employment losses from minimum wage increases, and minimum wage advocates use these studies to argue that the federal government can order employers to give low-wage workers a raise without costing them jobs. However, a larger body of empirical work finds that minimum wage legislation is not an effective antipoverty measure and, in fact, is harmful to employment. In February of this year, a JEC Commentary, Increasing the Minimum Wage—New Fallacies and Old Realities, and a CBO report The Effects of a Minimum-Wage Increase on Employment and Family Income refuted the assertions that minimum wage increases fight poverty effectively and do not cost jobs. Less than one-fifth of the resulting increase in wage income goes to people below the poverty line, and CBO’s central estimate of employment loss for the Administration’s current minimum wage proposal is 500,000 jobs.

This analysis takes an even wider perspective. Studies that find no employment effect carefully select the effects they measure, such as changes in existing employment in a specific occupation in particular locations during a limited timeframe. They ignore the political management of the implementation of minimum wage increases to avoid near-term layoffs and, critically, ignore the impediment to new job creation that minimum wage laws establish. Wage fixing by the federal government across the country and in perpetuity is anticompetitive and reduces the allocative efficiency of the labor market. Why do incumbent businesses that do not employ low-wage workers, and why do labor unions whose members earn more than the minimum wage support a higher minimum wage rather than other income support directly targeted at the poor? A wider perspective dispels the notion that minimum wage policy is conducted necessarily or exclusively to help the poor.

See the entire JEC Republican Staff Analysis attached below:

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