Tuesday, July 24, 2012

Should we raise the minimum wage?

Mark Perry has a nice piece on proposals to raise the minimum wage from $7.50 to $10, a 38% increase.  He begins with research that finds an elasticity of demand between  -0.1 and -0.15 or a 2-3 percent reduction in employment from a 20 percent increase in the minimum wage.
Accordingly, a 38 percent increase in the minimum wage to $10 per hour would reduce teenage employment by between 3.8 and 5.7 percent.  And what would that mean for the number of jobs eliminated and the increase in the jobless rate?  
If the 38 percent increase in the minimum wage to $10 per hour had the minimum effect of reducing teenage employment by “only” 3.8 percent, that would put 171,000 currently-employed teenagers out of work and increase the teen jobless rate almost three full percentage points to 26.6 percent.  At the high end, a 5.7 percent reduction in teen employment would put almost one-quarter million teenagers out of work and drive the teenage jobless rate up to 28.1 percent, the highest rate in history. 

1 comment:

  1. While it will prove to be beneficial to many to raise minimum wage to $10 per hour, there must be some consideration done in regards to the reduction in teenage employment. While there are many teenaged individuals who rely on their jobs, a fact that must be considered is that a raise in the minimum wage would result in older unskilled individuals to seek employment. This may play into the discussion on those who receive welfare benefits because a higher minimum wage may very well motivate those who receive welfare benefits to seek employment. While determining the elasticity is important to analyze in this determination, there should also be a great deal of consideration place on demand and where that demand will take place.

    Another factor to consider in the determination of raising the minimum wage is the fact that if teenagers are unable to gain employment because older individuals are obtaining them when they did not in the past, it may alter the teenagers desire to push for work in the future. A question to consider is whether or not this will affect the unemployment rate down the road when these teenagers are older. If they are unable to obtain employment now, there is not really a way to know that they will be motivated enough to fight for employment five or ten years down the road.