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November 19 2015

Report: Federal $12 Minimum Wage Could Cause Economy to Shed 770,000 Jobs

Patrice J. Lee

Is a $12 federal minimum wage the formula for raising incomes for low-income and middle-class workers? Progressives such as President Obama, Hillary Clinton, and Senator Patty Murray from Washington State are all pushing for $12 per hour while other Democrats and fast-food workers with the Fight for $15 want an even higher federal minimum.

While they tout the immediate boost in pay for minimum wage workers and insist that there will be an increase in economic activity as a result, they are dismissive of the shorter term and long term economic impacts of making it more expensive to hire and maintain these workers.

The non-partisan Congressional Budget Office (CBO) previously found that President Obama’s proposed $10.10 federal minimum wage would cut 500,000 jobs.

A new analysis from economists at Miami University and Trinity University finds that mandating a $12 per hour minimum wage would have a pretty devastating impact. More than three-quarters of a million workers would lose their jobs.

Forget boosting the middle class. Most interesting from this report is that the households affected are not just the poorest but even some middle class households. Based on the same methodology as the CBO, they estimated that those with household incomes between $35,000 and $100,000 would bear a large portion of the job loss (43 percent). Another 41 percent of those who stand to lose their jobs would come from family earning up to $34,999. Only 16 percent of employment loss would be among households with incomes of over $100,000.

The report also breaks down potential employment losses by state, by race, and by family income status. Here’s more from the report:

The analysis also explores the reasons why minimum wage increases have historically had such little success in decreasing poverty. The analysis finds that the average household income of those affected by the $12 legislation is $55,800. That’s largely because, as the analysis reveals, 60 percent of those affected by the hike are secondary or tertiary earners in their household.

 

Using CPS data, the economists also identify which demographics would be hardest hit by this job loss. They find that it would disproportionately impact black Americans, who would suffer 18 percent of the lost jobs despite being 13 percent of the U.S. population.

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The CPS also allows the economists to identify the income and family characteristics of those who would be affected by the wage hike. Contrary to the claims of minimum wage proponents, who argue that the minimum wage needs to be raised to help those in poverty, the analysis finds that the average family income of those affected by the proposed wage hike is $55,800 – around three times the federal poverty line.

Further examination of the CPS data helps explain this apparent paradox. The economists find that roughly 60 percent of those affected by the proposed minimum wage hike are secondary or tertiary earners in their families. In other words, most minimum wage earners supplement family incomes rather than drive them. In fact, only 9 percent of those affected by the wage hike are single parents.

This is a very different picture of the minimum wage workers from what advocates paint in the media. Furthermore, it’s another voice in the growing chorus of economists about the impact of high minimum wage hikes among those the policies are meant to help.

The Washington Free Beacon has more:

Michael Saltsman, a labor expert at the Employment Policies Institute, said that if Clinton were serious about potential job cuts, she would pay attention to the consensus among economists that dramatic minimum wage hikes lead to higher unemployment.

“Hillary Clinton is trying to have it both ways on the minimum wage, rejecting the national $15 demand promoted by labor unions while encouraging certain locales to embrace it,” he said. “Even her compromise position of a $12 federal minimum wage would have dramatic negative effects for less-skilled employees in the middle-income households she’s focused her campaign on.”

The institute has examined the effects of minimum wage hikes similar to Clinton’s $12 proposal. It conducted a survey of more than 200 businesses in Oakland, which increased its wage from $9 to $12.25 in March.

“Of the 223 businesses surveyed, 56 percent reported that the new minimum wage caused a large increase in their labor costs,” the survey found. “Of the businesses surveyed here, roughly one in 10 said it was ‘very likely’ to close, with another 18 percent ‘somewhat likely’ to close.”

When will the chorus of reason grow loud enough for Washington policymakers to listen?

Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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