Arizona’s labor market is struggling. There are 7.1 percent fewer private sector jobs today than before the Great Recession began six years ago. This loss is almost seven times larger than average for the rest of the country. Wage growth remains meager, contributing to rising income inequality.
The cure President Obama and various Arizonan policymakers propose for this labor market malaise is raising the minimum wage. But this prescription risks slowing Arizona’s already-weak labor market, disproportionately hurting its youth, and—ironically—increasing income inequality.
A significant amount of economic research, including a recent report by the nonpartisan Congressional Budget Office (CBO), finds that raising the minimum wage benefits some workers—but only at the expense of jobs for others. Further, those suffering job loss will be the least-skilled and least-experienced workers. In fact, the CBO report concludes that raising the national minimum wage to $10.10 will lead to the loss of 500,000 jobs.
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Simple economics explains the impact of a rising minimum wage: Raising hiring costs for less-skilled workers will force businesses to find substitutes. They may shift employment to higher-skilled workers or replace employees with rapidly advancing technology like automated checkout registers. A minimum wage hike therefore harms the Arizonans who need jobs the most. Since 2007, Arizona raised its minimum wage six times and last year had one of the highest youth unemployment rates in the country at 19.7 percent. In fact, the unemployment rate for those under 25 years old more than doubled over this time period—by far the biggest rise in the country.
In 2013, most workers earning “near-minimum” wage—between $7.80 and $8.80 per hour—were held by Arizonans under 25 years old. A continued rise in the minimum wage—especially a 30 percent rise to $10.10 per hour—puts more of these jobs at risk, threatening to boost already-high youth unemployment.
There is an often-invoked image of thousands of families living in poverty and surviving on a single minimum-wage income. In reality, almost half of Arizona’s near-minimum wage earners reside in households with an annual income of $40,000 or more. Households making over $100,000 annually comprise 15 percent. Two-thirds are single and never married. Further, most working-age people living in poverty didn’t log a single hour of work over the prior year. What they need most is a job.
Granted, there are some people trying to support families on low-income jobs. But by raising the costs of employing them, a higher minimum wage could endanger the job of any low-skilled worker. Fortunately, it is possible to raise wages and increase hiring at the same time. The focus should be on lowering—not raising—the overall cost of hiring. For example, Arizona could reform its occupational licensing regulations, which shield special interests from competition at the expense of job creation.
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The Copper State’s occupational licensing regulations are ranked the most onerous and widespread in the country. According to the Institute for Justice, a whopping 64 moderate-income occupations in Arizona (including painting contractors, manicurists, door repair contractors, and cabinet makers) require licenses, costing on average $455 in fees and two years of experience and education. Research finds these restrictions disproportionately harm low-income individuals. They prevent new, job-creating businesses from ever being formed and impede the ability of Arizonans to employ themselves.
Continuing to raise the minimum wage would cost Arizona the jobs it desperately needs and harm many of those who advocates intend to help. Instead, Arizona should reduce its severely stringent occupational licensing restrictions, which keep those who need a job out of work and hold back the state’s recovery.
— Keith Hall is a senior research fellow with the Mercatus Center at George Mason University and formerly the 13th commissioner of the U.S. Bureau of Labor Statistics between 2008 and 2012. Robert Greene is the project coordinator in the Regulatory Studies Program and Financial Markets Working Group at the Mercatus Center at George Mason University.
Photo credit: kanu101 (Flickr)
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