Surveys show that
many Americans feel anxious about their economic prospects. Often
they hear stories about weak job growth or stagnant earnings that
seem to confirm their fears. And many think that proposals to raise
the minimum wage would help low income workers get ahead in these
difficult times. But the evidence shows that that raising the
minimum wage would not help.
employment numbers from the Department of Labor show that America's
economy is growing steadily. Employers added 121,000 new jobs in
June, and employment growth in May was revised upwards by over
15,000 jobs. Over the last twelve months, the economy has created
1.85 million new jobs, including 854,000 new jobs since January.
The unemployment rate is only 4.6 percent, far below the averages
of the 1970s, 1980s, and 1990s.
Some critics say
that the low unemployment rate is due to the increasing number of
Americans who have chosen to opt out of the workforce and that the
job market is therefore not as strong as it seems. However, surveys
show that the Americans who have stopped looking for work do not
want to work right now. Instead they want to do things like enjoy
their retirement or return to school.
The better measure of the strength of the job market is this:
Americans looking for work in today's economy have relatively
little difficulty finding it.
In June, the
number of long-term unemployed (those unemployed for longer than 27
weeks) fell by 217,000 to 1.1 million workers. The median number of
weeks the unemployed stay out of work has fallen over the past year
from 9.1 weeks to 7.5 weeks. This is evidence that the unemployed
are having an easier time finding new work.
Moreover, the past
year has seen every alternative measure of unemployment decline.
For example, the unemployment rate that includes discouraged
workers (workers who have given up looking for a job due to
discouragement over their job prospects) fell from 5.3 percent in
June 2005 to 4.9 percent in June 2006.
earnings increased by $0.08 last month, and over the last year,
wages have gone up by 3.9 percent. This is the largest increase in
earnings since 2001 and is keeping pace with inflation.
Some Americans are
concerned that wages are not increasing fast enough, especially for
low-wage workers. If the market won't raise wages to help low
income Americans get ahead, they argue, perhaps the government can
by increasing the minimum wage.
It is an appealing
idea, but one that does not work in practice. The vast majority of
minimum wage workers do not live in poor households. Over half are
and the average family income of a minimum wage worker exceeds
$40,000 a year.
Unsurprisingly, research shows that raising the minimum wage does
not reduce poverty rates.
While it does
little to help the poor, the minimum wage has at least one
unintended side effect: It reduces workers' long-term earnings.
Research shows that increases in the minimum wage reduce the
earnings and employment prospects of workers who were exposed to
those increases over a decade later.
Higher minimum wages reduce job training investment, encourage
students to drop out of school, and destroy entry-level job
opportunities that can provide experience and skills. All of these
hurt workers over the long term. Higher minimum wages hurt the very
people they intend to help.
The June jobs
report shows an economy that is successful at putting Americans to
work. More Americans are working now than ever before, and periods
of unemployment are milder than they were in the past. Earnings
rose sharply last month and have increased over the past year.
Congress should resist the
urge to try to 'fix' the economy by increasing the minimum wage. If
Congress wants to improve the economy, it should focus on reducing
counterproductive labor-market regulation, especially the many
rules that make it expensive for employers to create jobs and hire
employees. Proposals to allow interstate competition in health
insurance markets, for example, could lower employers' expenses and
lead directly to job creation and increased earnings. This would do
far more for American workers than raising the minimum wage.
Hederman, Jr., is Senior Policy Analyst, and James Sherk is
Policy Analyst, in the Center for Data Analysis at The Heritage