Thursday, March 7, 2013

Raising The Minimum Wage Slows Long-Term Employment Growth

Posted by Milton Recht:

From Council on Foreign Relations, Geo-Graphics, "Obama's Minimum Wage Hike Will Hit Employment" by Benn Steil and Dinah Walker:
Source: Council on Foreign Relations

President Obama has proposed increasing the federal hourly minimum wage from $7.25 to $9.00,
An important question which follows is what impact this would have on employment. A recent paper by Texas A&M economists Jonathan Meer and Jeremy West found that whereas the immediate impact on unemployment of raising the minimum wage by 10% is very small, its impact on long-term job growth is more substantial: 0.35 percentage points. The logic is that raising the minimum wage is a greater deterrent to hiring than it is a motivator for firing.

...the effective minimum wage proposed by President Obama would decrease long-run job growth by 0.7 percentage points. Put in perspective, this is significant. Over the past twelve months, average year-over-year job growth has been 1.8%. Knocking off 0.7 percentage points would reduce it to 1.1%, which is barely more than the 0.9% average year-over-year growth in the labor force over the past twelve months.

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