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Wage Hike Will Hurt Young Workers, Small Businesses

By ANDREW MARKOWSKI

May 03, 2013

Unemployment among Connecticut residents under 25 years old has risen more than any other group since 2007, according to the state Department of Labor. The next steepest increase has been among workers ages 25 to 34. In other words, the state's economy has been hardest on young workers.

Connecticut's minimum wage is undoubtedly a factor in youth unemployment. First, we have one of the highest minimum wage rates in the region and the nation at $8.25 per hour. It's been raised twice in the past five years. Economists, including David Neumark of the University of California, who has reviewed multiple studies on the subject, have found that unemployment goes up when the minimum wage is increased and that the youngest workers are most affected.

Data from the federal Bureau of Labor Statistics make the point. Only 1.2 percent of hourly workers over the age of 25 earn the minimum wage. Only 2.1 percent of hourly workers over 16 earn the minimum wage. By far the largest group of workers (12 percent) making minimum wage are kids between 16 to 19 years old. What's remarkable is how the facts stand in contrast to the picture the advocates are painting: They want us to believe that there are thousands of poor families in Connecticut struggling to survive on minimum wage. It isn't true.

Nevertheless, Gov. Dannel P. Malloy wants to raise the minimum wage another 9 percent. Some lawmakers want to raise it 18 percent. And that doesn't even include employers' increased share of payroll taxes on the higher wages. Both proposals will make it much tougher for Main Street businesses, which typically rely heaviest on young, part-time workers to provide those jobs. Think of the family restaurants in your town. Or the supermarkets, landscapers, summer camps and shore businesses. They can't waive a wand and increase sales by 9 or 18 percent. Many of their expenses are fixed. They'll have to eliminate jobs or cut hours for their workers. Most of the jobs that will disappear are the jobs that kids need to earn extra money and learn the work habits and skills that will make them successful in the future.

Another factor working against younger job seekers is increased competition. Raising the minimum wage makes entry-level jobs more attractive to older workers, especially if they're unemployed or looking for part-time money, and therefore the competition for the lowest jobs gets more intense. In other words, raising the minimum wage prices younger workers out of the market for the jobs they need more than anyone.

But raising the minimum wage won't just affect young workers. Our research in other states shows that roughly two-thirds of the job losses will come from small businesses. That's because small businesses operate on thin margins and many can't afford higher labor costs. While some may try to avoid hiring entry-level workers, the pressure to raise wages for existing workers will inflate labor costs all the way up the ladder. The alternative is to raise prices, which will drive away customers and increase the cost of consumer goods and services.

None of this makes economic sense, especially for Connecticut, which lags the country in jobs. It will benefit very few.

So who's behind this effort? Supporters include labor unions that are putting lots of resources and political muscle behind raising the minimum wage in many states. Most of their members make much more than the minimum wage, but some contracts are tied to the rate. So if the minimum wage goes up, they get a pay raise. And if the minimum wage is automatically tied to inflation, as some lawmakers want, the rate goes up every year. Small business owners don't have that guarantee. In fact, 20 percent of our members told us that last year they didn't pay themselves a salary just so they could keep their doors open.

Raising the minimum wage in Connecticut is more about politics than it is about economics or "fairness." There's nothing fair about forcing businesses to lay off their youngest workers and raise prices for consumers just so others can have a bigger payday. With unemployment remaining stubbornly high, small businesses here are finding it harder to bear the high taxes and costly mandates already in place. Raising the minimum wage will harm businesses and job seekers in Connecticut who are already at a disadvantage.

Andrew Markowski is state director for the National Federation of Independent Business, which represents several thousand small businesses in Connecticut.