April 10, 1996

Increase minimum wage, increase unemployment
Cato scholar says wage hike proponents lack data

"Raising the federal minimum wage may increase the earnings of some workers,
but only at the expense of those who lose their jobs or are never hired,"
says Edward L. Hudgins, Cato's director of regulatory studies. "Proponents
of increasing the minimum wage argue that it will increase employment, but
they lack data to support their assertion."

Hudgins cites, for example, the work of Alan Krueger, former chief economist
for Secretary of Labor Robert Reich, and David Card, both with Princeton
University.  They purport to show that a minimum wage hike can boost employment.

But an analysis of their studies proves just the opposite, Hudgins says.  In
"Sense and Nonsense on the Minimum Wage," published in the Cato Institute's
Regulation magazine, Texas A&M economists Donald Deere and Finis Welch,
along with University of Chicago economist Kevin M. Murphy, conclude that
minimum wage hikes reduce employment.

They note, for example, that New Jersey and Pennsylvania had teenage
employment of 40.5 percent in 1988.  In 1990 New Jersey raised its minimum
wage to $5.05 per hour.  In 1992 teenage employment in New Jersey dropped to
29.1 percent while Pennsylvania's changed only marginally to 36.8 percent.

In the same issue of Regulation, Cato associate policy analyst James Bovard
documented how raising the cost of employment slows job creation, increases
layoffs and inflates consumer prices.

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