|The Economic Effects of Minimum Wages: What Might Missouri Expect from Passage of Proposition B?|
|By David Neumark|
|Monday, October 02, 2006|
In November, Missouri voters will vote on Proposition B, which would raise the state’s minimum wage to $6.50 per hour and thereafter index it to the Consumer Price Index, ensuring annual minimum wage increases of the same size (in percentage terms) as the rate of inflation. This paper provides an overview, based on a large body of existing research, of evidence on the effects of federal and especially state minimum wage increases.
The central goal of raising the minimum wage is to raise incomes of low-income families and reduce poverty. There are three reasons why raising the minimum may not help to achieve this goal. First, a higher minimum wage may discourage employers from using the very low-wage, low-skill workers that minimum wages are intended to help. Second, a higher minimum wage may hurt poor and low-income families rather than help them, if the disemployment effects are concentrated among workers in low-income families. And third, a higher minimum wage may reduce training, schooling, and work experience—all of which are important sources of higher wages—and hence make it harder for workers to attain the higher-wage jobs that may be the best means to an acceptable level of family income.
The evidence from a large body of existing research suggests that minimum wage increases do more harm than good. Minimum wages reduce employment of young and less-skilled workers. Minimum wages deliver no net benefits to poor or low-income families, and if anything make them worse off, increasing poverty. Finally, there is some evidence that minimum wages have longer-run adverse effects, lowering the acquisition of skills and therefore lowering wages and earnings even beyond the age when individuals are most directly affected by a higher minimum.