Policy Position

Minimum Wage

in Budget, Taxation, and the Economy

Introduction

Working for the lowest allowable wage is nobody’s ideal. People are rightfully moved by the thought of their neighbors toiling in menial work for small wages. They know how hard it is to make ends meet, even with greater earnings.

They’d like to help. How? Some engage in charitable endeavors, not just ones that provide for their immediate needs, but also ones that offer job and life skill training to help people learn how to find and keep jobs. Some openly seek to hire them and build them up as employees and productive individuals who see they have something to offer society. Some offer education and training, and some provide ways to help employers find job seekers.

Others think the way to do it is to have the government, federal or state, enforce a large increase in the minimum wage. They’re joined by politicians, activists, and, of course, demagogues seeking to profit from their good intentions.

The Obama administration advocated raising the federal minimum wage from $7.25 per hour to $10.10 per hour, a 39 percent increase. In 2016 during her presidential election campaign, former Secretary of State Hillary Clinton endorsed making it much, much higher: to $15 per hour, a 107 percent increase. Some local activists, media, unions, and politicians in North Carolina have begun pushing for a $15-per-hour minimum wage here.

Compassionate or not, raising the minimum wage hurts the very people it’s supposed to help: the poorest, the least skilled, and the disadvantaged. All a higher minimum wage can do is make it more expensive to employ low-level workers. It can’t increase the skill level of any worker. It can’t expand payrolls. It can’t keep the work hours offered by employers the same as before. It certainly can’t make automation less price-competitive (not with human labor suddenly becoming much more expensive). Finally, it can’t make employers stay in business despite sharply rising labor prices.

Most minimum-wage workers are new to the workforce, often unproven, and often not educated beyond high school. They are getting startup wages because they are startup workers. It’s a very small subset of workers, mostly young, and most working part-time.

Five years after the last large increase in the minimum wage (in 2007), employment of teenagers fell by 10 percentage points, and the hardest hit were teens from poor families in which a parent is out of work.

A working paper from the National Bureau of Economic Research on the effects of a minimum wage increase found “significant, negative effects on the employment and income growth of targeted workers.” The higher minimum wage kept low-income workers from accumulating work experience, made it harder for them to earn income, and limited their upward income mobility, even to rise just to the lower middle class.

Key Facts

  • Only about 5 percent of North Carolina’s workforce is paid at or below the minimum wage.
  • Raising the minimum wage even to $10.10 per hour could cost nearly 50,000 jobs in North Carolina, according to a recent study published in the Journal of Labor Research. It would affect not just the small portion of minimum wage earners, but all workers earning below $10.10 per hour.
  • Raising the minimum wage to $15 per hour would have an even harsher impact of job losses. Bear in mind it would impact not just minimum-wage jobs, but all jobs paying below $15 per hour. It would affect over 40 percent of the wage and salaried workforce in North Carolina.
  • Research from the Heritage Foundation estimated that raising the minimum wage to $15 per hour would cost over 330,000 jobs in North Carolina (full-time equivalent jobs) by 2021.
  • Economists agree the minimum wage increases unemployment among young and unskilled workers. Why? Because employers are more likely to expect worker output will be less than how much it will cost to employ them.
  • In 2015 the University of New Hampshire Survey Center found vast majorities of economists believe a $15-per-hour minimum wage would result in lost jobs, more skills required to get any job (even entry-level), fewer young people finding work, and business closings.
  • A June 2017 National Bureau of Economic Research study of Seattle’s phase-in to a $15-per-hour minimum wage found the following negative consequences for the second part of the phase-in (raising it to $13 per hour): over 5,000 fewer low-wage jobs, fewer hours worked in low-wage jobs, and most importantly, lower earnings for those in low-wage jobs.

Recommendations

  1. Keep the state minimum wage no higher than the federal minimum wage. Create no greater harm to the poorest, least-skilled, and least-experienced workers in North Carolina.

Data

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