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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:

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.