Minimum wage laws are tragic, since they hurt those that they intend to help. One recent study shows that states that have a minimum wage higher than the federal rate consistently have a higher unemployment rate (about 1.48 percent for every dollar above the federal rate) and a lower job growth rate. But worse, the effect on teenage unemployment is almost three times as bad. Little experience usually means low wages, but that first job leads to more experience, which leads to higher wages. Let’s not take away the first rung on the ladder from the young and poor.
Fortunately, the marketplace does a good job at rewarding increased experience. For instance, one study shows that 40 percent of wage earners in the bottom quintile (meaning one-fifth) in 1996 moved to a higher quintile by 2005. That means, as a group, in 10 years they saw their wages more than double! An older study spanning a longer period saw 95 percent of people move to a higher quintile after 15 years.
Further, our local governments can reject the minimum wage philosophy by not pushing away companies that offer entry-level positions at low wages. Rather, let’s welcome all companies, including those that will start the process of transforming our young and poor from unskilled workers to skilled workers. These skilled workers will then form an employment base that will attract more diverse and higher-paying jobs to the area. To be fair, some are unable to climb the ladder. Their wages can be supplemented through society’s welfare mechanisms, a far better fate than being totally reliant on welfare.