Thursday, June 12, 2014

Hard Truths About Minimum Wage - Who Should I Fire?

My income is fixed but decent, so I choose to employ maids and gardeners.  My choice results in extra coin in the pocket of people whom I know are not near as well off as myself.  The hard truth about a minimum wage increase of the size being contemplated by the San Diego City Council is that I can't really afford to continue to employ both.  So who should I fire, the maids or the gardeners?  This is the hard truth about the minimum wage.  My income is set by law, it's not going to change, so those are my choices to deal with rising costs.  Those arguing for the minimum wage will tell me that I am not paying those people enough, but when someone loses that income, I'll bet they would prefer that I still employed them.  Further, I won't be the only one making such a choice; some people are going to lose their jobs with a minimum wage hike.

The other hard fact is that the people who really need employment, the young, will be disproportionately shut out of the job market by a minimum wage rise.  From the BLS:
Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 21 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over. 
And from the Heritage foundation (also based on 2012 statistics):
The characteristics of the teenagers and young adults who earn the minimum wage or less support the notion that these minimum-wage workers rarely work to support children and their families:
  • 79 percent work part-time jobs.
  • 62 percent are enrolled in school during non-summer months.
  • Their average family income is $65,900 per year.
  • Only 22 percent live at or below the poverty line, while 68 percent enjoy family incomes over 150 percent of the poverty line, which is $33,500 for a family of four.[6]
  • Most have not finished their education. A third have not yet finished high school, while almost a quarter have only a high school degree. Another two-fifths have taken college courses but have not yet graduated. Many of these are college students working part-time while in school. Only 3 percent have finished college and obtained a degree.

Only 3.7 million workers in the U.S. earn the minimum wage or less, which is about 2% of the workforce.  This doesn't do much about income inequality, if that is your current shibboleth.  This is a solution in search of a problem.

Finally, when we look at employment statistics, we find that the young are the ones suffering in the lack of growth in the economy:

Here is the civilian labor force participation rate for those over 55 since 2000:

U.S. Civilian Labor Force Participation Rate for age 55+. Source

And here is the same data for the youngsters (16-24).

U.S. Civilian Labor Force Participation Rate (16-24). Source

It is pretty obvious that the drop in participation rate is far greater for the younger age population. They are the ones leaving the work force; don't believe the lies that labor participation is down because baby boomers are retiring.  The old goats are hanging on to their jobs like the bitter clingers they are. Demographic trends of the older folks retiring is pure bunk. These statistics bode ill for the future because we aren't getting youth employed when they should be starting their working careers and learning skills.

You know what would really help lack of youth employment? Increasing the minimum wage to further disconnect their pay from their skill levels.

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