Union Interests Work Against Low-Wage Workers
This article originally appeared in RealClearMarkets.
A few days after the latest round of fast food demonstrations, when the Service Employees International Union tried to get workers all over the country to go out on strike to demand $15 an hour, a newly published National Bureau of Economic Research paper confirms what most of us already know: minimum wage increases harm the earnings and job mobility of low-skill workers.
University of California (San Diego) economics professors Jeffrey Clemens and Michael Wither looked at the effects of changing the federal minimum wage from 2007 to 2009. During that period, the wage rose in three installments from $5.15 an hour to $7.25 an hour. During the same period, the percent of the population that was employed, known as the employment-population ratio, declined by 4 percentage points among adults aged 25 to 54 and by 8 percentage points among those aged 15 to 24.
The average worker faced a 30 percent minimum wage increase. This is far less than the more than 100 percent increase that the SEIU is seeking for fast food workers. The SEIU proposed wage increase to $15 would cause far greater damage.
The SEIU and its affiliates, Fast Food Forward, also known as Fight for 15, called for $15 an hour wages and a union. Although the SEIU was trying to organize strikes, the fast food workers had not voted for the SEIU, or any other union, to represent them. The SEIU and Fast Food Forward were self-appointed and self-anointed. The SEIU was after not only the 2 percent to 4 percent dues payments, but also the $40 to $50 dollar initiation fees for joining the union.
The fast food industry is especially attractive to unions because it has rapid turnover, with three people filling each position per year as they cycle in and out of the industry. This means three sets of initiation fees for the union, which could add up to $150 a year in addition to the dues.
Clemens and Wither look at the change in the minimum wage across states that had different state minimum wage laws. Some states have raised their minimum wage above the federal minimum wage. The authors divide states into those in which the federal minimum wage was binding and those in which it was not. They use panel data from the 2008 Survey of Income and Program Participation, and assess the extent to which increasing the minimum wage affected the wage distribution of minimum wage workers. Not surprisingly, they found that some low skill workers who earned the old minimum wage were employed at the new minimum wage.
But the professors found that the minimum wage increase substantially reduced employment. By the second year after the $7.25 minimum wage, the authors estimate that employment of low-skill workers had declined by 6 percentage points, or 8 percent more in states with the binding federal minimum wage than in states with a higher state minimum wage.
They then examined teenagers and food service workers in more detail. For this sample, they found that employment declined by 4 percentage points.
Increasing the minimum wage has a disproportionately more harmful effect on states such as Texas, which has no minimum wage, than on states such as California and New York, which have higher minimum wages. For example, an increase in the federal minimum wage to $10.10 an hour, as President Obama is proposing, would not affect Seattle residents, who will face a $15 hourly minimum wage in a few years.
In addition to reducing employment, the binding minimum wage increase makes it more likely that people work without pay, such as getting internships. Recall that employers have to pay workers the minimum wage or above, but in some circumstances they have the option of paying them nothing as interns.
The binding minimum wage increases reduced average monthly income for low-skill workers by $100 per month in the first year and by $150 per month in the two years afterwards.
Overall, in the late 2000s, the average hourly minimum wage rose by 30 percent across the United States. The minimum wage increases reduced the employment to population ratio for working adults by 0.7 percentage points. This accounts for 14 percent of the total decline in the relevant period.
This research is significant because it contradicts the research of other some economists who conclude that increasing the minimum wage has no effect on wages and employment. These include the University of California's David Card and Princeton University's Alan Krueger, as well as Arindrajit Dube of the University of Massachusetts, T. William Lester of the University of North Carolina, and Michael Reich of the University of California. Others, such as University of California professor David Neumark, have consistently found negative effects of minimum wage increases among teens and low-skill workers.
Unlike the happy message of the SEIU, Clemens and Wither show that increasing the minimum wage reduces both the likelihood of employment and average income. The research should be a warning to low-wage workers: Unions who purport to represent your interests are often just representing their own.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute. You can follow her on Twitter here.
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