Press Release

Raising Minimum Wage a ‘Cruel Hoax’

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RALEIGH – State Treasurer Richard Moore wants to raise the state’s minimum wage to help those on the lowest rung of the economic ladder. Studies show those are the very people most likely to be harmed, a new John Locke Foundation Spotlight points out.

Moore’s “One Dollar More” campaign seeks to bring North Carolina’s minimum wage to $6.15 per hour, a dollar more than the federally mandated minimum wage. Moore says it would improve the situation for the poorest among us. JLF vice president for research Dr. Roy Cordato says Moore couldn’t be more wrong.

“Basic economics says that wages are tied to worker productivity,” Cordato said. “Forcing employers to pay ‘one dollar more’ would also force them to turn away more unskilled workers who couldn’t be productive enough to earn one dollar more.”

Moore’s campaign relies on a 1994 study by economists David Card and Alan Krueger on the effects of the minimum wage, Cordato said. Their study of fast-food employment suggested that a small increase in the minimum wage actually increased employment in minimum-wage jobs — counter to economic theory.

“Card and Krueger’s study has been roundly repudiated by economists ever since it appeared,” Cordato said. He cites as an example a study published in the American Economic Review in 2000 that attempted to replicate Card and Krueger’s results. Economists David Neumark and William Wascher found that Card and Krueger used sloppy data collection techniques. They relied on phone interviews with managers and failed to define the time interval.

“When Neumark and Wascher used payroll data instead of telephone survey data, they reached the opposite conclusion of Card and Krueger,” Cordato said. “What they found was consistent with economic theory — the higher minimum wage decreased employment in minimum wage jobs.

“People today who advocate raising the minimum wage based on Card and Krueger’s work ought to know it has been discredited,” Cordato added. “They used poor methodology and therefore got results that were completely backward.”

The link between productivity and wages is not difficult to understand, Cordato said. “You might not be able to see why ‘one dollar more’ an hour would hurt people,” he said, “but what if the state mandated $100 more an hour? Few of us would have the capabilities and skill to remain employed.”

Raising the minimum wage would not hurt most of us, Cordato said. “Only those who are the least experienced and least skilled will be hurt by it. And those are the ones it’s supposed to help,” he said. “The way to help inexperienced, low-skilled workers is to make it possible for employers to take a chance on them, so they can gain valuable on-the-job training and experience in entry-level work. That is how they can make themselves more valuable as employees.”

Cordato cited a study by Duke University researchers Peter Arcidiacono and Tom Ahn, who found that a 10 percent increase in the minimum wage would decrease a low-skilled worker’s likelihood of finding employment by 2.9 percent. “The effect of ‘one dollar more’ would be to reduce low-skilled workers’ odds of finding employment by 5.5 percent,” Cordato said.

Not only are the lowest skilled workers the ones most harmed by increasing the minimum wage, Cordato said, but research also shows that middle- to upper-income families are the ones that benefit the most. Cordato cites a study by Stanford University researchers Thomas MaCurdy and Frank McIntyre that found that 57 percent of the workers who benefit from minimum-wage increases live in higher-income categories.

“It’s a cruel hoax to raise the minimum wage in the name of helping the lowest skilled workers,” Cordato said. “It’s bad enough that the government harms their employment prospects by giving them substandard education. But for the state to make it even harder to hire them by raising the minimum wage, and call it helping them, that’s just cruel.”

Dr. Roy Cordato’s Spotlight report, “The Minimum Wage Effect: ‘One Dollar More’ Means More Unemployed,” is at the Locke Foundation’s web site. For more information, please contact Dr. Cordato at 919-828-3876 or [email protected]. To arrange an interview, contact JLF communications director Mitch Kokai at (919) 306-8736 or [email protected].

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We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

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