Minimum Wage, Maximum Benefit?

By Marc Breslow

This article is from the September/October 1997 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/1997/0997breslow.html

This article is from the September/October 1997 issue of Dollars & Sense magazine.

issue 213 cover

The federal government raised the minimum wage from $4.25 to $4.75 per hour on October 1, 1996, with another 40 cent increase scheduled for September 1, 1997. Opponents argued that the boost would cause disastrous job losses, particularly among those groups who already had the highest unemployment rates, such as blacks and teenagers. "Raising the minimum wage destroys job opportunities for unskilled workers," says Mark Wilson of the Heritage Foundation. And the conservative Employment Policies Institute projected that the eventual hike to $5.15 would cost 621,000 jobs.

In contrast, the Economic Policy Institute (EPI) reports that the first six months of the minimum wage jump were good for the vast majority of employees affected. However, EPI's data also show that a significant number of young black workers may have lost their jobs.

EPI economists Jared Bernstein and John Schmitt compared the October 1996 through March 1997 period (immediately after the wage hike) to the prior six months. They found that the number of people earning less than $4.75 per hour fell from 5.7% to 3.4% of all employees, a drop of 2.3 percentage points. Meanwhile, the number earning $4.75 or more rose an equal amount, based on a sample survey of 76,000 people by the U.S. Census Bureau.

Applying these percentages to the entire U.S. population yields an increase of about three million workers making $4.75 or more. At the same time, the wage increase "had no significant effect on the employment of teens or young adults," say Bernstein and Schmitt.

Simply comparing these six months to the prior half a year leaves the potential for inaccuracy, for three reasons: employment and wages vary seasonally, there was economic growth between the two time periods, and growth varied among the states. But even after controlling for these factors, EPI's analysis produced similar results. Adjusted employment for both teenagers (16-19) and young adults (20-24) actually rose slightly (although due to the limited sample size, the increase was not statistically significant).

The story is more mixed when one examines specific racial and ethnic groups. On the plus side, people of color who kept their jobs benefited disproportionately from the wage hikes caused by the new law, because they are overrepresented in low-wage positions. For blacks, 19% of teenagers and 5.1% of young adults saw their wages rise from below $4.75 an hour to this level or higher. For Hispanics (the Census Bureau's term), the gains went to 19.6% of teenagers and 8.5% of young adults.

On the other hand, there was one danger sign: Adjusting the data for seasonal variation and economic growth, black employment fell by 1.8 percentage points for teenagers and 2.5 points for young adults, while employment rates for Hispanics rose significantly and those for whites were unchanged. If the survey is accurate this is a serious concern, since among young blacks 44,000 men and 8,000 women would have lost their jobs. But EPI argues that because the sample size was small (about 1,000 blacks between ages 16 and 24) and because "employment data for these subgroups are volatile..." they advise against drawing strong conclusions from the results for minority subgroups.

Jared Bernstein acknowledges that "there is some truth" in the statistics showing a drop in employment for young blacks, and believes "it is indicative of blacks being the most disadvantaged group in the labor force, both due to their skill levels and to discrimination." But Bernstein argues that rather than respond by slashing the minimum wage, the United States should "raise the employability of the most disadvantaged workers and combat the forces of discrimination."

end of article