government changes the law, individuals respond to those changes.
Because of this, the true effects of a law often differ radically
from its authors' intentions. For example, Congress created welfare
to help the poor in times of need, but instead it created a cycle
of dependence trapping low-income Americans in poverty.
the minimum wage brings with it unintended consequences that run
counter to lawmakers' aim of helping the working poor. Like
anything else, when the price of labor rises, businesses buy less
of it. The role of the minimum wage in raising unemployment is well
known and well documented.
But even worse, recent research has shown that higher minimum wages
reduce teenage education levels and decrease workers' long-term
earnings. Studies also show that the minimum wage does not reduce
poverty. As always, Members of Congress should look beyond their
good intentions and consider the full effects of proposed policies.
If they do, they will reject raising the minimum wage.
Minimum Wages Reduce
Contrary to the
rhetoric of those who favor raising the minimum wage, most people
affected by the minimum wage are actually young workers.
Individuals between the ages of 16 and 24 accounted for 53 percent
of all minimum wage-earners in 2005.
When the minimum wage rises, it increases the incomes of teenagers
with minimum-wage jobs, making entering the workforce more
attractive. This, in turn, can be expected to cause some students
to spend less time in school and more time working. While the
overall number of minimum-wage jobs might decrease, if employers
prefer to hire teenagers to low-skilled adults, the number of
teenagers enrolled in school would drop.
has confirmed exactly this effect. David Neumark, professor of
economics at Michigan State University, and William Wascher, a
researcher with the Federal Reserve, found that minimum wage hikes
decrease the proportion of teenagers enrolled in school.
In states which allow students to drop out of school before they
are 18, a 10 percent increase in the minimum wage caused teenage
school enrollment to drop by two percent. In states which require
students to stay in school until they are 18, raising the minimum
wage had no effect. In sum, when students have the option, higher
minimum wages motivate some to leave school and start working.
paper confirms this conclusion. Duncan Chaplin of the Urban
Institute, Mark Turner of John Hopkins University, and Andreas Pape
of Michigan State University examined teenagers' continuation
ratios-the proportion of a school's students in any year who either
graduate or progress to the next grade level.
They found that higher minimum wages decreased continuation ratios
and led teenagers to drop out of school. Again, this result was
present only in states where teenagers could drop out of school at
skills and education to get ahead in the economy, and workers
without a high school diploma face difficult career prospects.
Raising the minimum wage actually motivates teenagers to make
choices that may push them into poverty later in life.
Long-Term Effects of
The fact that
minimum wages reduce educational attainment suggests examining
their long-term effects. In a recent study, Neumark and Olena
Nizalova, of Michigan State University, examined the incomes of
adults who had been teenagers when minimum wages rose in their
They found that minimum wage hikes reduced both the probability of
holding a job and the incomes of workers exposed to them over a
decade later. They also found that this negative effect is
larger for African-Americans than for whites, perhaps because more
African-Americans hold jobs that pay near the minimum wage.
minimum wage has these negative long-term effects because it alters
the choices that people make today in ways that have long-term
consequences. It induces some students to drop out of school,
reducing their long-term employability. By raising unemployment and
eliminating entry-level jobs, minimum wage hikes also eliminate
opportunities for workers to gain valuable experience and skills
that prepare them for future jobs. These unintended consequences
severely hamper low-income workers' future job and earning
Increases Do Not Reduce poverty
For all the
negative unintended effects of the minimum wage, it is perhaps not
surprising that the minimum wage does not reduce poverty.
Neumark and Wascher found that minimum wage hikes increased the
probability that poor families escaped poverty but also increased
the probability that previously non-poor families fell below the
poverty line. Overall, poverty rates did not change. Neumark and
Wascher conclude that raising minimum wages does not reduce
On balance, we
find no compelling evidence supporting the view that minimum wages
help in the fight against poverty. Rather, because not only the
wage gains but also the disemployment effects of minimum wage
increases are concentrated among low-income families, the various
tradeoffs created by minimum wage increases more closely resemble
income redistribution among low-income families than income
redistribution from high- to low-income families.
On balance, then,
the minimum wage leaves low-income Americans no better off in the
short term and far worse off in the long term.
Due to unintended
effects, a law can achieve the opposite of its supporters'
intentions. The minimum wage is such a law. It is intended to
reduce poverty, but it does not. Instead it encourages teenagers to
drop out of school and reduces low-income workers' future job
prospects and earnings. Good intentions are not enough. Congress
should not pass a destructive minimum wage hike that will harm the
most vulnerable American workers.
James Sherk is a
Policy Analyst in the Center for Data Analysis at The Heritage