Despite severe economic difficulties confronting businesses, and soaring unemployment among youths and minorities, the federal minimum wage is slated to increase to $7.25 in July from $6.55 today. This will be the final step of a three-step increase enacted in the spring 2007, when the unemployment rate was 4.5%.

Based on 20 years of research, I doubt there is ever a goodtime to raise the minimum wage. However, with the aggregate unemployment rate at 9.4%, the teen unemployment rate exceeding 22%, and the unemployment rate for black teens nearing 40%, next month's increase seems like the worst timing possible.

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduce employment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits. Many people believe, for instance, that it helps low-income families. Here, too, the evidence is discouraging. There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I've done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty.
 
How can this be? Because the relationship between being a low-wage worker and living in a poor family is remarkably weak. Many low-wage teenagers and young adults are in higher-income families, and many poor families have no workers.

According to recent data from a study by Richard Burkhauser and Joseph Sabia, 34% of minimum-wage workers were in families with incomes exceeding three times the poverty line ($22,050 for a family of four) -- roughly the top half of the income distribution. Only 17% were in poor families.

In addition, when deciding which low-wage worker to retain following a minimum wage increase, employers may opt for a teenager, who may have high potential, over an adult who, because he still earns a low wage, likely has much lower potential. Thus, the job-destroying effects of minimum wages fall particularly hard on low-skilled adults in poor families.

There is also evidence that the short-term consequences of minimum wages have long-term effects. The principal sources of an individual's higher earnings are more schooling and the accumulation of experience and skills in the labor market. Unfortunately, increased minimum wages induce some teenagers to drop out of high school and take a job. Moreover, these dropouts take jobs away from the even lower-skilled teenagers who had dropped out earlier. With fewer opportunities to acquire labor-market experience and skills, these teenagers face lower wages as adults.

The accumulated evidence undermines the case for minimum wages even in the best of times. I recognize that there is continuing debate about some of the effects of minimum wages, and that strong public support for higher minimums -- regardless of the evidence -- will likely lead to future increases.

But let's put aside the broader debate and focus on the narrower question: Should we raise the minimum wage in the worst of times? When so many people -- especially the young -- are struggling to find a toe hold in the labor market, does it really make sense to make it harder for employers to hire them?

Minimum wages, like most public policies, confront us with trade-offs. An employed, low-skilled worker who keeps his job earns a slightly higher wage. But a worker who loses his job, or a labor-market entrant or unemployed worker who cannot find a new job, pays a much higher cost. Given present economic conditions, the imperative should be to create and enhance job opportunities.

I do not expect President Obama or congressional Democrats to give up their long-held support for a higher minimum wage. However, they should delay the increase in the minimum wage scheduled for this summer.
 
Mr. Neumark is professor of economics at the University of California, Irvine, and the author, with William Wascher, of "Minimum Wages" (MIT Press, 2008).

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This article was first published in the Wall Street Journal online on 12 June 2009.

Articles in the Perspectives series plus a large library of books, studies, speeches, articles and DVDs on a wide range of public policy issues can be found at nzbr.org.nz.
 

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