May 31, 2005
RALEIGH — A bill in the North Carolina House would raise the state-imposed minimum wage to $8.50 an hour, but a new analysis from the John Locke Foundation suggests that low-income workers will be harmed rather than helped by the measure.
Dr. Roy Cordato, vice president and resident scholar at the Raleigh-based think tank, wrote today’s Spotlight briefing paper on the proposal. He summarized the findings of hundreds of studies of the economic effects of minimum-wage increases on unemployment.
“It may seem like economists never agree on anything,” Cordato said, “but 80 percent of labor economists agree that living-wage laws punish low-skilled and poorly educated workers.”
The reason has to do with the economic basis of the employer-employee relationship, Cordato said. If government forces total compensation to be higher than the value of goods and services a worker produces, that worker won’t be hired.
He cited a recent study by two Duke University researchers concluding that each 10 percent increase in the minimum wage causes a 2.9 percent decline in the likelihood of finding employment. At that rate, the proposed increase in North Carolina’s minimum wage to $8.50 an hour would reduce the job prospects of low-income workers by nearly 19 percent.
Some advocates of raising the minimum wage argue that many affected workers are sole breadwinners struggling to support themselves and children. But Cordato offered Census data showing that only 17 percent of North Carolina workers earning at or slightly above the minimum wage are sole earners with children. A far larger share (36 percent) are singles living with parents or relatives, while 19 percent are married to another income earner and 28 percent are sole earners without children.
The real problem for many low-income workers is not inadequate regulation of wages but a lack of education, work skills, and experience, he said. The state’s own failure to provide effective schooling to many poor and minority children is a key factor. “Government schools serve white, middle- and upper-middle-class children adequately, while failing dismally those who need it the most,” Cordato wrote.
The Spotlight paper on the proposed minimum-wage increase, “Still a Bad Idea,” is available at the John Locke Foundation’s main web site. Please contact Cordato at 919-828-8376 or [email protected] for more information.