HON. RON PAUL
OF TEXAS
IN THE HOUSE OF REPRESENTATIVES
Thursday, June 10, 1999
1999 Ron Paul 57:1 Mr. PAUL.
Mr. Speaker, I highly recommend
Bruce Bartlett’s “Minimum Wage Hikes Help
Politicians, Not the Poor”, which recently appeared
in The Wall Street Journal, to all of my
colleagues. Mr. Bartlett’s article provides an
excellent overview of the evidence that an increase
in the federally-mandated minimum
wage reduces teenage employment. Since
those shut out of entry-level work are unlikely
to obtain higher-paying jobs in the future, an
increase in the minimum wage reduces employment
opportunities for millions of Americans.
This point was also highlighted by Federal
Reserve Chairman Alan Greenspan in
testimony before the Senate in January when
he pointed out that
“All the evidence that I’ve
seen suggests that the people who are the
most needy of getting on the lower rungs of
the ladder of our income scales, develop
skills, getting the training, are unable to earn
the minimum wage. As a consequence, they
cannot get started. And I think we have to be
very careful about thinking that we can somehow
raise standards of living by mandating an
increase in the minimum wage rate.”
I hope all of my colleagues will carefully consider how
increasing the minimum wage decreases opportunities
for our nation’s youth and refrain
from reducing economic opportunity for those
at the bottom of the economic ladder by raising
the minimum wage.
1999 Ron Paul 57:2 Bruce Bartlett is senior fellow at the NCPA.
He was Deputy Assistant Secretary for Economic
Policy in the Treasury Department from
1988 to 1993, and Senior Policy Analyst at the
White House from 1987 to 1988. He is an expert
commentator on taxes and economic policy,
the author of two books and, a syndicated
columnist. His articles have appeared in many
papers including The Wall Street Journal and
The New York Times. He regularly appears on
national television and radio programs.
MINIMUM WAGE HIKES HELP POLITICIANS, NOT
THE POOR
(By Bruce Bartlett)
It now appears likely that the Republican
Congress will soon raise the minimum wage
for the second time in three years. In 1996
the minimum increased to the present $5.15
an hour from $4.25; the increase now being
considered would bring the figure up to $6.15
by 2002. This is bad news, for as many as
436,000 jobs may disappear as a result of the
increase.
1999 Ron Paul 57:4 During the last debate, two arguments
were advanced in favor of raising the minimum
wage. The first claimed that the minimum
wage had fallen sharply in real
(inflation-adjusted) terms since the previous increase
in 1991. But with inflation having all
but vanished in the 19 months since the last
increase, this argument does not hold true
today.
1999 Ron Paul 57:5 The second argument, based almost exclusively
on a 1995 study by economists David
Card and Alan Krueger, was that raising the
minimum wage actually reduced unemployment.
Since then, however, virtually every
study done on the subject has confirmed
longstanding research showing that raising
the minimum wage invariably has a negative
impact on employment, particularly among
teenagers and minorities.
1999 Ron Paul 57:6 The federal minimum wage was first enacted
in 1938, but applied only to the small
minority of workers who were engaged in
interstate commerce. The first data we have
on teenage unemployment are from 1948.
From then until a significant expansion of
the minimum wage in 1956, teenage unemployment
was quite low by today’s standards
and was actually lower for blacks than
whites. Between 1948 and 1955 unemployment
averaged 11.3% for black teenage males and
11.6% for whites.
1999 Ron Paul 57:7 Beginning in 1956, when the minimum wage
rose from 75 cents to $1, unemployment rates
between the two groups began to diverge. By
1960, the unemployment rate for black teenage
males was up to 22.7%, while the white
rate stood at 14.6%.
1999 Ron Paul 57:8 Despite such evidence, supporters continued
to push for ever higher and more inclusive
minimum-wage rates, which were raised
almost yearly between 1961 and 1981. At each
point the unemployment rate for black teenagers
tended to ratchet higher. By 1981, the
unemployment rate for black teenage males
averaged 40.7% — four times its early 1950s
level, when the minimum wage was much
lower and its coverage less extensive. That
year, the federally-mandated Minimum Wage
Study Commission concluded that each 10%
rise in the minimum wage reduces teenage
employment by between 1% and 3%.
1999 Ron Paul 57:9 Subsequent research, based on the effects
of the previous two minimum-wage increases,
continues to confirm this estimate.
A study of the 199091 increases, which raised
the rate by 27%, found that it reduced overall
teenage employment by 7.3% and black
teenage employment by 10%. Similarly, a
study of the 1996 increases found a decline in
employment of between 2% and 6% for each
10% increase in the minimum wage.
1999 Ron Paul 57:10 In a study published by the Federal Reserve
Bank of San Francisco, economist Kenneth
Couch Translated these percentages
into raw numbers. At the low end of the
range, at least 90,000 teenage jobs were lost
in 1996 and another 63,000 jobs lost in 1997. At
the higher end, job losses may have equaled
268,000 in 1996 and 189,000 in 1997. He estimates
that a $1 rise in the minimum wage
will further reduce teenage employment by
between 145,000 and 436,000 jobs.
1999 Ron Paul 57:11 The fact is that the vast bulk of economic
research demonstrates that the minimum
wage has extremely harmful effects on the
very people it is designed to aid — the poor:
1999 Ron Paul 57:12 The minimum wage unambiguously reduces
employment. The September 1998 issue
of the Journal of Economic Literature, an official
publication of the American Economic
Association, contains a survey of labor
economists on the employment effects of the
minimum wage. When asked to estimate the
impact of raising the minimum wage, the average
effect was estimated at minus 0.21%,
meaning that a 10% rise in the minimum
wage will reduce overall youth employment
by 2.1%. This puts to rest any notion that
economists have changed their view that in
general higher minimum wages reduce employment.
1999 Ron Paul 57:13 Increases in the minimum wage have a disproportionate
impact on teenagers and the
poor. The minus 2.1% figure cited above is an
overall impact. For those currently earning
less than the new minimum wage, the impact
is much greater. For example, prior to
the 1996 increase, 74.4% of workers between
the ages of 16 and 24 already earned more
than $5.15, and 4.3% were legally exempt
from the minimum wage law. Thus the employment
losses were concentrated among
the 21.3% of workers making the minimum
wage or slightly more. When one attributes
total employment losses entirely to this
group, it turns out that the employment loss
figure is minus 1%, according to economists
David Neumark, Mark Schweitzer and William
Wascher. This means a 10% rise in the
minimum wage reduces employment among
this group by 10%.
1999 Ron Paul 57:14 Increases in the minimum wage add almost
nothing to the incomes of poor families.
There are two reasons for this. First, employment
losses reduce the incomes of some
workers more than the higher minimum
wage increases the incomes of others. Second,
the vast bulk of those affected by the
minimum wage, especially teenagers, live in
families that are not poor. Thus a study by
economists Richard Burkhauser and Martha
Harrison found that 80% of the net benefits
of the last minimum-wage increase went to
families well above the poverty level; almost
half went to those with incomes more than
three times the poverty level. (The poverty
level is about $17,000 for a family of four.)
1999 Ron Paul 57:15 The minimum wage reduces education and
training and increases long-term unemployment
for low-skilled adults. Messrs.
Neumark and Wascher found that higher
minimum wages cause employers to reduce
on-the-job training. They also found that
higher minimum wages encourage more
teenagers to drop out of school, lured into
the labor force by wages that to them seem
high. These teenagers often displace low-skilled
adults, who frequently become
semipermanently unemployed. Lacking
skills and education, these teenagers pay a
price for the minimum wage in the form of
lower incomes over their entire lifetimes.
1999 Ron Paul 57:16 A raise in the minimum wage has always
been an easy sell in Washington. But whatever
the political realities may be, it’s still
a bad idea.
Note:
1999 Ron Paul 57:1
federally-mandated probably should be unhyphenated: federally mandated.
1999 Ron Paul 57:8
federally-mandated probably should be unhyphenated: federally mandated.
1999 Ron Paul 57:10
economist Kenneth Couch Translated probably should not be capitalized:
economist Kenneth Couch translated.
