Mt. Vernon Register-News

Opinion

December 11, 2013

Pitfalls of pay increases

(Continued)

There are a few other reasons to be cautious about these increases. Most employees working at or near the minimum wage are not the heads of poor households. They are typically either young (up to about 25) or are second-earners, in which case their households do not rely exclusively on them for income. Although Americans might be happy to see all of these workers get a raise, we should perhaps be concerned that any loss of employment might be most concentrated among the small fraction of these workers who are poor adults and who most need the jobs, as some research suggests.

Indexing increases in the minimum wage to a measure of price inflation makes sense in some cases. But indexing should begin closer to the lower end of the ranges recently set. One reason employers might not reduce hiring in response to wage increases is that, traditionally, these increases tend to erode over time with inflation. If it is costly to change production methods in ways that reduce employment, many employers might judge that it is not worth doing so, since the increased wages would be normalized with time anyway. But indexing might change those calculations, because the newly implemented increases would not erode over time. And, since little indexing has been done in this country, there is little research to explain how employers would respond to minimum-wage increases in that context.

The biggest reason to be cautious in raising minimum wages is the weak job market. Employment opportunities nationwide continue to be limited. In a strong or rapidly improving job market — such as that of 1996-98, when a federal minimum increase took effect — there is little reason to worry about such increases reducing employment levels. But the job market’s recovery from the recession has been agonizingly slow, and two of the groups whose wages stand to be increased — the young and least-educated — already have the hardest time finding work. Many are experiencing long-term unemployment from which it is increasingly difficult to escape.

As localities and states consider appropriate minimum-wage increases and where to apply them, they should try to avoid increases that might make it even harder for the youngest or least-educated among us to find work.

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