March 4, 2013

University Research Concludes Raising Minimum Wage Would Hurt Job Creation

wagesPrompted by President Obama’s proposal to raise the national minimum wage from $7.25 per hour to $9 with annual increases for inflation, Texas AM University researchers have reported that raising the minimum wage will reduce job creation while not impacting layoffs or turnover rates. Called Effects of the Minimum Wage on Employment Dynamics, the study clarifies that currently working people would not be affected by a minimum wage hike, but fewer new hires would be subsequently made to meet future business needs. Jonathan Meer, a specialist in public economics at the university said the report:

“…focused on employment dynamics – job creation and job destruction directly, rather than just net employment. We very carefully controlled for a number of factors that could conflate increases in the minimum wage and changes in employment, and found that job creation was reduced substantially, but job destruction did not increase. Net job growth falls in response to an increase in the minimum wage, but employee turnover is unaffected.”

Meer continued, “This makes intuitive sense: firing people is unpleasant and costly, so adjustment takes some time as employers reduce their hiring of new or replacement workers. Some previous studies, especially ones with shorter time horizons, have failed to find an effect on the level of employment because it takes time for these effects to be reflected in total employment.”

He contends that the report showed that there are a number of reasons not to raise the minimum wage and to even ditch the concept altogether. Of particular importance to his argument is the idea that the more a service costs, the less consumers will purchase and that low-skilled labor is not an exception from this. Meer sums up:

“If workers are providing more value to employers than they cost, then they will be hired. If they aren’t, then they will not be hired. If you’re never hired and get the chance for some job experience, you can never move up the ladder. While some people may get slightly higher pay and be somewhat better off, being unemployed is really, really bad, and there’s no reason why we should be focusing on the people who currently have these jobs (and will keep them) rather than those who are trying to get these jobs but can’t.”

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Joshua Bjerke, from Savannah, Georgia, focuses on articles involving the labor force, economy, and HR topics including new technology and workplace news. Joshua has a B.A. in Political Science with a Minor in International Studies and is currently pursuing his M.A. in International Security.