July 14, 2004
Cornell University researchers: Big minimum-wage increase would cut job opportunities for entry-level workers
Increasing the minimum wage to $7 per hour would only reduce employment opportunities for entry-level workers, especially low-skill workers the minimum wage increase is supposedly intended to help, according to a new study by Cornell University researchers.
And most of the benefits of the increase would not go to poor families, according to the study, which was commissioned and released July 1 by the Employment Policies Institute (EPI).
"The majority of the working poor are not helped by a minimum wage hike, and the vast majority of those who benefit do not live in poor families," said Richard Burkhauser, professor and chairman of Cornell's department of policy analysis and management. He wrote the study in collaboration with Joseph Sabia, also a Cornell researcher.
The study analyzed the likely effects of a proposal to increase the federal minimum wage to $7 per hour, which would be a 36 percent increase. The New York State Legislature is considering an increase to as much as $7.25 an hour. The study showed that:
likely beneficiaries of this minimum-wage hike do not live
in poverty, and most are not the primary earner in their
family, the study concluded.
"In fact, according to U.S. government data, employees earning the minimum wage are more likely to live in families earning three times the poverty line than in poor families," EPI's release on the study said. "Only 15 percent of the benefits from a wage increase to $7.00-an-hour would go to families in poverty, while 60 percent of the benefits would go to families earning twice the poverty line or more."
12.6 percent of beneficiaries from the proposed increase
are unmarried women with children, while over 82 percent
are either not the highest earner in their family, are single
adults, or are married without children.
vast majority of families living in poverty will not benefit
from the proposed increase and will actually be likelier
to lose their jobs to higher-skilled workers attracted to
the higher wage, the study showed. This effect would be
especially dire on the nation's least skilled workers, the
- A 10 percent increase in the minimum wage causes four times more employment loss for employees without a high school diploma and African American young adults than it does for more educated and non-black employees.
The study's findings echo those in an April 2002 report on so-called "living wage" ordinances by The Public Policy Institute of New York State, The Business Council's research affiliate. That study concluded that "living wage" laws that raise the minimum wage employers must pay in an attempt to help the working poor can actually harm low-income workers by reducing the number of available jobs.
Even those who receive higher wages under such laws may actually gain little or nothing because they lose public assistance, Food Stamps and other benefits, according to The Institute's study, What's the Best Way to Help Low-Wage Workers Move Up? The study also noted that most independent economists say such laws reduce employment opportunities for lower-skilled workers, because employers will respond by eliminating jobs that do not produce enough revenue to justify the higher wage or by hiring better-qualified workers.
The PPI study is available at www.ppinys.org/reports/2002/livwage.pdf.