Fox & Friends hosted author and businessman Peter Schiff to claim that the minimum wage negatively affects employment among the young and poor. In fact, studies have found that there is no relationship between changes in the minimum wage and teen unemployment or overall unemployment.
Fox Hosts Schiff To Suggest Minimum Wage Negatively Effects Employment On Young And Poor People
Schiff: "One Of The Most Anti-Poor People Rules Is The Minimum Wage." On the September 21 edition of Fox News' Fox & Friends, co-host Brian Kilmeade hosted author and businessman Peter Schiff, who claimed that minimum wage rules negatively affect employment for young and poor people. From Fox & Friends:
KILMEADE: All right, so let's look at what you think we should do. How to encourage job growth, according to Peter Schiff: abolish the minimum wage. People think that's anti-poor people.
SCHIFF: Well, one of the most anti-poor people rules is the minimum wage. It keeps people poor. What the minimum wage does is says that if a person that has very little skills, and generally they're young or they're poor, you can't hire them unless they can produce --
SCHIFF: -- $7.25 worth of value, but it's not just that. It also has to compensate you for all the mandatory benefits and taxes and risks associated with hiring people.
SCHIFF: And people that have no skills, it's not just worth it to hire them --
KILMEADE: Peter, I want to get through, too -
SCHIFF: -- maybe $3 or $4 an hour, if that's what they're worth -
KILMEADE: -- I understand what you're saying. You also say - you say to repeal - hold on a second.
SCHIFF: -- and you wouldn't have all this red tape, maybe after a year or two, they would be earning $10 or $15 an hour -
SCHIFF: The problem is they never get a chance. [Fox News, Fox & Friends, 9/21/11, via Media Matters]
In Fact, The Minimum Wage Has Little To No Effect On Youth Unemployment
EPI: "The Warnings Of Massive Teen Job Loss Due To Minimum Wage Increases Simply Do Not Comport With The Evidence." In a November 25, 2009, post, the Economic Policy Institute found:
First, the labor market is in a severe downturn that is affecting essentially all groups. Since the recession started in December 2007, the overall employment rate has fallen from 62.7% to 58.5%, including a decline of 0.9 percentage points since July alone. Figure A shows the overall employment rate, along with the teen employment rate. Both the overall rate and the teen rate have experienced steep declines during the current downturn. The teen rate, however, has fallen farther, as the plot shows is always the case in recessions (recessions are shaded). Teen workers occupy the "last hired, first fired" rung on the job ladder, and their employment is hit much harder during downturns than that of older workers.
Figure B illustrates this further -- it shows teen employment as a percent of total employment over time. Because teens are hit harder by downturns than older workers, their share of total employment drops during recessions (and, for the recessions of 1990 and 2001, during the period of joblessness that followed them). A quick examination of the plot reveals that far from being an aberration, the decline in the teen share of employment over the last two years is right in line with what would be expected given the length and severity of the current downturn in the labor market.
Instead, Figure B illustrates how teen employment is driven far more by larger labor market employment trends than by any effects of minimum wage changes. The black lines in Figure B mark times when Congress increased the minimum wage to keep up with inflation. The two-step increase in 1990 and 1991 occurred during a period of deterioration in the labor market, and the teen employment share dropped. The two-step increase in 1996 and 1997 occurred during a strong labor market, and the teen employment share increased. The three-step increase in 2007, 2008, and 2009 occurred during a weak labor market, and the teen employment share fell.
This observation is consistent with what careful empirical studies have found. While it is true that there is some disagreement among economists about whether increasing the minimum wage increases or decreases employment, there is a consensus on the essential point: the impact of a minimum wage raise on jobs, whether positive or negative, is small. The warnings of massive teen job loss due to minimum wage increases simply do not comport with the evidence. [EPI.org, 11/25/09]
University Of California Study: Minimum Wage Has Nothing "But Very Small Disemployment Effects" On Teen Employment. A June 2010 report by University of California-Berkeley's Institute for Research on Labor and Employment (IRLE) stated:
Traditional estimates that often find minimum wage disemployment effects include controls for state unemployment rates and state- and year-fixed effects. Using CPS data on teens for the period 1990-2009, we show that such estimates fail to account for heterogeneous employment patterns that are correlated with selectivity among states with minimum wages. As a result, the estimates are often biased and not robust to the source of identifying variation. Including controls for long-term growth differences among states and for heterogeneous economic shocks renders the employment and hours elasticities indistinguishable from zero and rules out any but very small disemployment effects. Dynamic evidence further shows the nature of bias in traditional estimates, and it also rules out all but very small negative long-run effects.
Some observers maintained that teen unemployment would increase because of the timing of these minimum wage increases. Teen unemployment rates did indeed increase throughout 2008 and 2009. The teen unemployment rate was 16.9 percent at the start of the recession in December 2007 and increased to 20.8 percent in July 2008 and again to 24.5 percent in July 2009. Were these increases in teen unemployment a result of minimum wage increases during an especially severe economic downturn, or simply the result of harsh economic conditions?
More generally, are the disemployment effects of minimum wage for teens more pronounced (or at least present) when the labor market is slack? To the extent the measured employment effects are small for monopsonistic reasons, some firms are labor supply-constrained as opposed to labor-demand constrained. But this is less likely to be the case when the unemployment rate is high and job vacancy is low. There may be other possibilities as well, including a greater consumer demand effect from an increase in minimum wages during a recession.
Overall, the results do not indicate heterogeneous impacts of minimum wages depending on the overall rate of unemployment. Within the range of variation the minimum wage and overall unemployment rates in our sample, the effects do not seem to vary across phases of the business cycle or across labor markets with differing labor market tightness.[IRLE, 6/21/10]
National Employment Law Project: Most Minimum Wage Earners Are Adults, Not Teenagers. In a December 26, 2010, Register-Guard op-ed, the National Employment Law Project's (NELP) Anne Thompson wrote: "Even the claim that the minimum wage only affects teenagers looking for pocket change does not hold up. Most minimum wage earners are adults, many of whom support families on this income. Nationwide, three-quarters of minimum wage earners are 20 or older." [The Register-Guard, 12/26/10]
Minimum Wage Similarly Has Little To No Effect On General Unemployment
IRLE Study Found "No Detectable Employment Losses From The Kind Of Minimum Wage Increases We Have Seen In The United States." According to a 2010 Institute for Research on Labor and Employment study:
For cross-state contiguous counties, we find strong earnings effects and no employment effects of minimum wage increases. By generalizing the local case studies, we show that the differences in the estimated elasticities in the two sets of studies result from insufficient controls for unobserved heterogeneity in employment growth in the national-level studies using a traditional fixed-effects specification. The differences do not arise from other possible factors, such as using short before-after windows in local case studies.
The large negative elasticities in the traditional specification are generated primarily by regional and local differences in employment trends that are unrelated to minimum wage polices. This point is supported by our finding that neighborhood-level placebo minimum wages are negatively associated with employment in counties with identical minimum wage profiles. Our local specification performs better in a number of tests of internal validity. Unlike traditional fixed-effects specification, it does not have spurious negative (or positive) preexisting trends and is robust to the inclusion of state-level time trends as added controls.
How should one interpret the magnitude of the difference between the local and national estimates? The national-level estimates suggest a labor demand elasticity close to -1. This implies that an increase in minimum wage has a very small impact on the total income earned by affected workers. In other words, these estimates suggest that the policy is not useful for raising the earnings of low-wage workers, as the disemployment affect annuls the wage effect for those who are still working. However, statistical bounds (at the 95% confidence level) around our contiguous county estimates of the labor demand elasticity as identified from a change in the minimum wage rule out anything above -0.48 in magnitude. This result suggests that minimum wage increases do raise the overall earnings at these jobs, although there may be differential effects by demographic groups due to labor-labor substitution.
These caveats notwithstanding, our results explain the sometimes conflicting results in the existing minimum wage literature. For the range of minimum wage increases over the past several decades, methodologies using local comparisons provide more reliable estimates by controlling for heterogeneity in employment growth. These estimates suggest no detectable employment losses from the kind of minimum wage increases we have seen in the United States. Our analysis highlights the importance of accounting for such heterogeneity in future work on this topic.[IRLE, 11/10]
IRLE: "No Discernable Disemployment Effect, Even When Minimum Wage Increases Lead To Relatively Large Wage Changes." According to a 2009 IRLE study: "We also find no relationship between the minimum wage elasticity of overall teen wages and the elasticity of employment across the 74 commuting zones. This result provides further evidence that there is no discernable disemployment effect, even when minimum wage increases lead to relatively large wage changes." [IRLE, 6/25/09]
EPI: Lowering Minimum Wage Would Not Boost Employment. In a July 2010 post, EPI reported:
Lately, opponents of the minimum wage have suggested that decreasing it would help to boost employment. This is a terrible idea for a variety of reasons. First, the minimum wage is not high by historical standards -- today, the real value of the minimum wage is less than what it was from 1961 to 1981. Second, research on the disemployment effects of the minimum wage give mixed results -- many indicate that a small change to the minimum wage would have no impact on employment. Furthermore, even if there is a disemployment effect, it is small and far outweighed by the fact that low-wage workers on average will see a net benefit from most minimum wage increases (Shierholz 2009). Finally, one of the biggest problems during a recession is the decrease in consumer demand -- when consumers cut back on spending, employers respond by cutting back on jobs. Reducing the wages of already low-wage workers will only make this problem worse, and will hurt those who are least well off. [EPI, 7/23/10]