Baltimore’s city council, like others around the country, is considering raising the city’s minimum wage to $15 per hour. This is an ill-advised move that will make it harder for young people and the least skilled to find employment, which is already a difficult task in Baltimore.
The figure below shows the age 16 – 19 labor force participation (LFP) rate, employment rate, and unemployment rate in Baltimore City from 2009 to 2014 (most recent data available). The data are from the American Community Survey table S2301.
As shown in the figure, the LFP rate declined along with the employment rate, which has caused the unemployment rate to hold steady at approximately 40% (red line). So 40% of Baltimore’s unemployed teens were searching for a job but couldn’t find one and only 20% of all teens were actually employed, a decline of 4 percentage points (blue line). How is increasing the minimum wage to $15 per hour going to help the 40% who are looking for a job find one?
The minimum wage increase may help some people who are able to keep their job at the higher wage, but for the 40% who can’t find a job at the current minimum wage of $8.25, an increase to $15 is only going to make the task harder, if not impossible. Who is standing up for these people?
The data are just as gloomy when looking at workers with less than a high school degree, which is another group that is severely impacted by a higher minimum wage. As the figure below shows, the employment rate is falling while the unemployment rate is rising.
In 2009 over 42% of people in this skill group were employed (blue line). In 2014 only 37% were, a decline of five percentage points. Meanwhile, the unemployment rate increased from about 19% to over 25% (red line). And all of this occurred while the economy was supposedly improving.
Again we should ask; how is a higher minimum wage going to help the 25% of high school dropouts in Baltimore who are unemployed find a job? It won’t. Unemployed workers do not become more attractive as employees simply because the city council mandates a higher wage.
What’s going to happen is that more people in this skill group will become discouraged and leave the labor market entirely. Then they will earn $0 per hour indefinitely and be forced to rely entirely on family, friends, and public assistance to live. A $15 minimum wage destroys their chances of finding meaningful employment and unduly deprives them of opportunities to better their lives.
This is the unseen effect of minimum wage hikes that $15 supporters rarely acknowledge. When faced with the higher cost, firms will hire workers who can justify a $15 wage and those who cannot will be unable to find employment. Additionally, firms will start using more technology and automation instead of workers. This happens because consumers want low prices and high quality, and as the minimum wage increases technology and capital become the best way to give consumers what they want. Over time workers in states with lower minimum wages may be forced out of the labor market as well as new technologies spread from high minimum wage areas to low minimum wage areas.
Another common argument put forth by minimum wage supporters is that taxpayers subsidize firms that pay low wages. But this is not true. Firms like Wal-Mart, McDonalds, and the countless other large and small business that employ low-skill workers are doing their part by giving people an opportunity. Firm owners did not unilaterally decide that all Americans should have a minimum standard of living and they should not be required to provide it on their own. Ultimately, advocates of a higher minimum wage who worry that they are subsidizing firms will likely be forced to contribute even more tax dollars to social programs since the wage for unemployed workers is $0.
Furthermore, why $15 and not $20? The argument is that $15/ hour is the minimum necessary to maintain a basic standard of living for working Americans but that argument is subjective. In fact, it can be extended to other areas. For example, should new hires be paid more than an entry-level salary so they can pay off college debt and maintain the standard of living of their parents?
To the extent that Americans deserve a particular lifestyle, providing it is a collective burden that should be shared by everyone. Politicians, clergy, union heads and other minimum wage supporters who want to push the entire burden onto firms are abandoning the moral obligation they claim we all share.
While minimum wage supporters mean well they appear to be blind to those who are harmed by wage controls. And those who are harmed are some of the most vulnerable members of the workforce – high school drop-outs, recent immigrants and urban youth. The minimum wage is a misguided policy that consigns these vulnerable members of the labor force to the basement of the economy and prevents any escape.