Scott G Winterton, Deseret News
“I can’t survive on $7.25!” runs the chant of striking fast-food workers, in rolling strikes moving through major American cities this week. The goal of the fast-food strike is to double salaries to $15 an hour and unionize the cheap-eats work force.
McDonald’s accidentally stirred the hornet's nest a few weeks back with an employee budget worksheet that assumed a model employee who works two full-time jobs. Even with the example person carrying a second job, the numbers still didn’t really add up. Setting aside just $20 a month for health care raised eyebrows, for example. McDonald's took a hit on the resulting publicity.
President Barack Obama has for months been pressing to hike the minimum wage to $9 an hour, citing a growing gap between rich and poor. The federal minimum wage last was raised in 2009.
With low-end jobs at the heart of the current economic recovery, some argue that boosting the minimum wage will pull workers out of poverty, while others foresee disincentives to hire resulting in even higher youth unemployment.
A new normal?
The push to raise the minimum wage is “an act of resignation,” said Douglas Holz-Eakin, president of American Action Forum and former director of the Congressional Budget Office. “We can’t do anything about it, so let’s just transfer income to workers at the bottom.”
The push to hike the minimum wage takes place amidst a hesitating recovery. Most job growth since 2009 has been in low-wage jobs. But teen unemployment, which should most obviously benefit from low-wage jobs, remains at a staggering 24 percent.
The July jobs report released Friday offered little to cheer about. Unemployment fell slightly to 7.4 percent, but much of that came from workers dropping out of the market. And as the Huffington Post noted, “Temps accounted for nearly 8,000 of the jobs added in July, and along with retail and restaurant workers made up more than half of the employment gains.”
“This has been a very severe recession and a very weak recovery,” said Holz-Eakin. “It would be my hope that we can make sure this doesn’t turn out to be the new normal.”
Economists disagree sharply over the “disemployment” effect of the minimum wage. The old conventional wisdom was that a measurable spike in labor costs accomplished by increasing the minimum wage would lead to fewer low-end jobs.
This axiom that increased wage costs mean fewer jobs came under heavy fire in the past decade, and before long it was widely accepted that modest minimum wage hikes had little impact on overall employment. But that recent consensus appears far from stable.
A January 2013 study published by the National Bureau of Economic Research concluded that the "evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others." The authors found particularly sharp impacts on teen unemployment.
This teen disemployment effect was noted by the Wall Street Journal, which after the minimum wage was increased in 2008 editorialized in 2010 that a “higher minimum wage has the biggest impact on those with the least experience or the fewest skills. That means in particular those looking for entry-level jobs, especially teenagers. And sure enough, as nearly all economic models predict, the higher minimum has wreaked havoc with teenage job seekers, well beyond what you would expect even in a recession.”
“I would say there is an academic dispute on the minimum wage and overall unemployment effects,” Holz-Eakin said. “But I don’t think there is much dispute that it is a disincentive to hire teenagers and low-skilled workers.”
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