In his State of the Union address, President Obama called for increasing the federal minimum wage by a little over 24%. This is the wrong policy at the wrong time. Raising the minimum wage will make it more costly for firms to employ workers — particularly those low-skilled workers who are more likely to earn the minimum wage. Given the dismal state of our labor market, now is absolutely not the time to increase the cost of hiring workers.
Our labor market is in crisis. We have extremely high headline unemployment, the “real” unemployment rate is over 14%, the employed share of the population is at a level we haven’t seen for decades, and the number of long-term unemployed in this labor market downturn is at a record high.
I believe that the weight of the evidence suggests that increasing the minimum wage will decrease employment, particularly among low-skilled workers and young workers — though this debate is far from settled, and some academic economists disagree.
But even if you disagree, surely it won’t be the case that increasing the minimum wage will increase employment. And given the state of the labor market, we need policies which will increase employment.
Now is not the time to increase the cost of hiring workers. The government needs to make it easier for firms to hire workers, not harder. Raising the minimum wage is the wrong policy for a labor market in crisis.