New Hampshire’s minimum wage hike will damage the economy

  • Author: Dr. Jill Jenkins

  • Publication Date: April 2007

  • Newspaper: The Union Leader

  • Topics: Minimum Wage

On April 26, the New Hampshire state senate approved a bill raising the state minimum wage to $7.25. With House approval already in the bag, the bill now goes to Gov. John Lynch, who is expected to sign it.

Given the adverse effects minimum wage hikes have had on other states, New Hampshire’s sudden support is surprising to say the least. News reports nationwide confirm what economists have been telling us for decades: the minimum wage hurts low-skilled, low-income workers — the very people it’s purported to help. The problem: in a $13 trillion economy, it’s often hard to see the specific individual tragedies that result from ‘feel good’ ideas.

Take Michigan, which bumped up its minimum wage by over a dollar last October, with a second increase coming in July. The Detroit News reported in February that Goodwill Industries, which has been hiring students from low-income families for training-oriented employment for over a decade, has had to reduce its number of summer employees by 50 percent. According to one of its directors, “We took July into consideration when deciding how many kids to hire this year … It’s tragic to me.”

Likewise, owners of stores in nearby Hartland and Saginaw have fired workers in anticipation of the upcoming increase. Restaurant proprietor Jill Thieme explained to a local paper: “I had people that didn’t deserve a raise — their skill levels didn’t match it. So I got rid of two or three that were not productive and hired one that was.”

There’s a similar story from Pennsylvania, which saw a more modest raise in its minimum wage last October. Joel Meadows, a partner at a food company that’s one of the largest employers in small-town Altoona, said he’ll be cutting up to 6,000 hours per year to offset higher costs because “the only other way is to increase prices,” which are resisted by consumers.

Mark Messner, owner of a Phoenix, Arizona pizzeria, laid off three employees and decreased hours for others as a result of the state’s minimum wage going up $1.60 late last year. As he told The Arizona Republic, “I’ve had to go to some of my kids and say, ‘Look, my payroll just increased 13 percent. Sorry, I don’t have any hours for you.'”

At a March roundtable sponsored by the San Francisco Chronicle on the economic impact of the city’s $9.25 minimum wage, restaurant manager Nate Valentine told his colleagues that “people are now looking to other cities to open new restaurants.” Eric Rubin, owner of the popular Tres Agaves, echoed Valentine in saying that “we are not looking to expand in San Francisco,” calling the city’s business environment “onerous.” This reluctance to invest translates into fewer new jobs for San Francisco’s low-skilled workforce.

These firsthand accounts of the damage done by the minimum wage aren’t a series of unrelated anecdotes. They’re the rule of unintended consequences made real. And they’re just the tip of the iceberg.

Defenders of the minimum wage are likely to reply that these costs are outweighed by the benefits bestowed to the employees who keep their jobs and get a boost in earnings. The problem with that line-of-thought is that recent economic data indicate that the benefits from wage hikes are going to people who are in families that are pretty well off to begin with, and come at the expense of the most vulnerable members of the workforce.

According to a study from Cornell and University of Georgia economists Richard Burkhauser and Joseph Sabia, only 12.7 percent of the gains from an increased federal minimum wage will actually go to wage-earners in poor families. In fact, the average annual family income for a minimum wage earner in the U.S. is now over $45,500. How about the people long-thought be the primary beneficiaries of the minimum wage: poor single moms? Burkhauser and Sabia found that only 3.8 percent of the benefits from a hike would go to them. Can you think of a more poorly targeted anti-poverty program?

And research from Dr. David Neumark, an economist at the University of California, Irvine, shows that minority teens and high school dropouts are disproportionately likely to lose their jobs as a result of employer cost-cutting in the face of a $7.25 wage floor.

The momentum behind the minimum wage is complicated to explain. But the damage it deals to economic opportunity is not. As the New Hampshire Legislature tees-up the issue one more time, an old line from Ricky Ricardo comes to mind: “You got a lot of ‘splaining to do.”

Dr. Jill Jenkins is the chief economist of the Employment Policies Institute (www.old.epionline.org), a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment