October 12, 2016
RALEIGH — Raising the government-mandated minimum wage to $15 per hour could cost North Carolina 334,000 jobs. The least-skilled and most vulnerable workers would feel the largest impact, according to a new John Locke Foundation Spotlight report.
“Economic research consensus is clear on the negative effects of a higher minimum wage on low-skilled, poor, and teenage workers,” said report author Jon Sanders, JLF Director of Regulatory Studies. “Advocates who believe they will be helping these groups are confusing their good intentions with good outcomes.”
Left-of-center politicians and activists have touted the $15 minimum hourly wage in recent years at the local, state, and national level.
“In places like North Carolina, which has set a government-mandated wage no higher than the federal level, the proposal would represent a 107 percent increase,” Sanders said. “Skyrocketing the minimum wage to that level would have deep impacts. That’s over double the current minimum and would capture far, far more workers than a modest increase.”
Estimates suggest a $15 minimum wage would affect roughly one-third of workers nationally and more than 40 percent of workers in North Carolina, Sanders said.
Sanders highlights more than a decade’s worth of economic research showing negative impacts linked to the government-mandated minimum wage. “A 2006 survey of the economic literature showed a relatively consistent finding of negative employment effects,” he said. “Very few — if any — studies provided convincing evidence of positive employment effects, and the researchers found what they labeled ‘relatively overwhelming evidence’ of negative effects for the least-skilled workers.”
Studies in recent years have confirmed those findings. The evidence points to trade-offs between higher wages for some against job losses for others, especially “very low-skilled workers,” Sanders said.
A 2015 survey of U.S. economists found “large majorities” who opposed a $15 minimum hourly wage, Sanders said. “The economists said the higher wage would lead to fewer available jobs, lower youth employment levels, lower adult employment levels, employers requiring greater skills for entry-level jobs, and small businesses having a harder time staying in business.”
A 41 percent increase in the federal minimum wage from 2007 to 2009 produced disturbing effects, Sanders said.
“Economists studying the issue five years later found significant, negative impacts for low-skilled workers’ employment and income trajectories,” he said. “A lower income trajectory is the result of the higher minimum wage keeping low-skilled workers from accumulating experience as well as income, artificially limiting their upward income mobility, even to rise just to the lower middle class.”
The Economic Policy Institute found negative impacts for teens from the last minimum wage increase. “In North Carolina, the increase caused a 3.6 percent employment decline among teenagers,” Sanders said. “For teens without 12 years of education, the decline was twice as high: 7.2 percent.”
Research about the impact of a $15 minimum hourly wage has been sparse, largely because “no increase of the magnitude under discussion has ever been seen before,” Sanders said.
A former Congressional Budget Office director and former chief economist of the Council of Economic Advisers led a study projecting a national loss of 6.6 million jobs. A Heritage Foundation economic researcher estimated a loss of 6.9 million jobs. It’s that research that leads to the estimate of 334,000 lost jobs in North Carolina.
“The median hourly wage in North Carolina was $15.91 in May 2015, only 91 cents higher than the new proposed minimum wage,” Sanders said. “That alone implies heavy disemployment effects in North Carolina from forcing the minimum wage to $15 per hour. Such a wage would impact over 40 percent of North Carolina workers.”
Advocates are misguided when they suggest such a massive increase in the minimum wage would help the economy and employment, Sanders said.
“A higher minimum wage can’t increase the skill level of any worker,” he said. “It can’t expand payrolls. It can’t keep the hours offered by employers steady. It can’t make automation less price-competitive with more expensive human labor. It can’t make employers stay in business.”
“All it can do is make it more expensive to employ low-skilled workers,” Sanders added. “Teenagers and the least-skilled, inexperienced, and poorest workers — the very people we would like to see have more opportunities to become productive workers in North Carolina — they’re the ones most likely to be left behind by a minimum wage increase.”
State policymakers have made the right choice in resisting calls to raise North Carolina’s minimum wage higher than the federal level, Sanders said. “There is no good reason to inflict any greater harm to the poorest, least-skilled, and least-experienced workers in North Carolina than the federal minimum wage already does,” he said. “State leaders should also urge their federal counterparts against increasing the minimum wage, especially to the unprecedented cliffs of $15 per hour.”
Jon Sanders’ Spotlight report, “Keep North Carolina Working: Minimum Wage Hikes Hurt the Very People They’re Supposed To Help,” is available at the JLF website. For more information, please contact Sanders at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].