Employment

Would Killing the Minimum Wage Help?


Republican Presidential candidate Michele Bachmann has soft-pedaled her opposition to the minimum wage law considerably since 2005, when she was quoted as saying, at a Minnesota State Senate hearing, “Literally, if we took away the minimum wage—if conceivably it was gone—we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.” Appearing on CBS (CBS)‘s Face the Nation on June 26, Bachmann would say only that eliminating the minimum wage is “something that obviously Congress would have to look at” as a solution to high unemployment.

Campaign trail positioning aside, would repealing the minimum wage really make a dent in the U.S. jobless rate, which was 9.1 percent in May? While economists don’t all agree, the bulk of research points to only small potential job gains—if any—from a suspension of the minimum wage. In a 2000 survey of 308 academic economists, just under half agreed fully that the minimum wage increases unemployment among “young and unskilled workers.” The rest agreed with that statement with provisos or not at all.

In a 2009 blog post, Bachmann, a Minnesota congresswoman, cited research by David Neumark, a University of California at Irvine economist, on the job-killing effects of the minimum wage for teens and young adults. In a June 27 interview with Bloomberg Businessweek, Neumark stood by those findings. He added, however, that “the link between the federal minimum wage and employment for the lion’s share of workers is irrelevant … It’s not even in the top 10 list of how to recover from the Great Recession.” (The Bachmann campaign did not respond to an e-mail request for comment.)

For people earning well above the minimum wage, the law matters little. According to the Bureau of Labor Statistics, of 72.9 million hourly wage earners in 2010, only 6 percent worked at or below the minimum wage. (Some hourly workers, such as casual babysitters, workers on small farms, and fishermen, are not covered by the minimum wage.)

Even for workers at the bottom, the minimum wage’s effect is not obvious. In a study of fast-food workers in New Jersey and neighboring Pennsylvania, Alan Krueger of Princeton University and David Card of the University of California at Berkeley found no statistically significant effects on employment when New Jersey raised its state minimum wage in 1992 and Pennsylvania did not. Says Krueger, who served in the Obama Administration as Assistant Treasury Secretary for economic policy in 2009-10, “I would be skeptical that eliminating the minimum wage would have a noticeable effect on employment.”

Bachmann does have some economists on her side. “Michele Bachmann’s position is not radical,” says Chris Edwards, director of tax policy at the libertarian Cato Institute. Edwards says high unemployment of teenagers in both booms and recessions is evidence that the minimum wage is above the value of their labor. Yet the main cause of unemployment today is a lack of demand, not overpriced labor, says Sylvia Allegretto, a UC Berkeley economist. Even if the minimum wage does keep some low-skilled workers out of the market, eliminating the wage floor doesn’t look like an important way to spur job growth.

The bottom line: Dropping the minimum wage could reduce unemployment among teenagers and other low-skilled laborers—a small part of the workforce.

Gara is an editorial intern for Bloomberg Businessweek.

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