Promoting Job Cuts, 20 Cents at a Time

This week, the federal minimum wage will rise to $7.25, which is 70 cents higher than the previous national minimum and 20 cents higher than the current minimum in Missouri. Advocates of the minimum wage hike ostensibly intend to create a “living wage” for the poor, but there are some significant unintended consequences: Minimum wage policy raises costs for businesses and creates economic pressure for them to hire less low-skilled labor.

As the Show-Me Institute has cited in several studies and articles about the effects of minimum wage on the labor market, most people in minimum wage jobs are not in the poorest brackets — many are teenagers who live with their parents, or are people with wealthier spouses.

Those in the poorest brackets and at minimum wage level tend to be predominantly low-skilled workers. When the minimum wage is increased and employers are forced to scale back their hiring, the poorest low-skilled workers tend to lose their jobs as employers choose between them and teenagers from mostly middle-income backgrounds. Minimum wage increases also raise the cost of goods, which harms poorer families disproportionately. Essentially, minimum wage function as an additional tax on the poor.

Any time that the minimum wage is raised, but especially during a recession, the people hurt the most are the lowest-skilled workers — the very same people these raises are supposed to help. If Missouri wants to help its poorest workers, lowering mandated minimum wage levels (or eliminating them entirely) would help tremendously.