Bush’s Minimum Wage Increase Killed Jobs

In addition to being in favor of more spending, increased regulation, bailouts, and protectionism, President Bush also saddled the economy with a big minimum wage increase. A new study shows that this pernicious policy has destroyed more than 500,000 part-time jobs. One of the most interesting insights in the report is that the economy (prior to Bush’s awful law) had reached a point where the minimum wage wasn’t doing much damage because the competitive wage for entry-level work had risen about the government-mandated minimum. But by boosting the required wage by 14, 12, and 11 percent over three years, that is no longer the case. As a result, hundreds of thousand of people have been priced out of the job market.

Economic theory is clear in its understanding of the minimum wage – it unambiguously reduces the demand for labor, but only if the minimum wage is above the market wage for unskilled entry level labor. In practice, the minimum wage has been far beneath the going wage for unskilled, entry level workers. Increasing the minimum wage at these levels would have no effect on employment or wages. As a consequence, research findings have ranged from zero to modest job losses as the minimum wage increases. Unfortunately, the latest round of minimum wage increases, which occurred in late July 2007, 2008 and 2009, occurred from the peak through the trough of the recession. These increases were, at 14, 12 and 11 percent respectively, the largest since 1978 and the largest three-year percentage change since 1950. …the minimum wage increase accounts for roughly 550,000 fewer part-time jobs now than would otherwise be the case without the most recent three minimum wage increases. …Abandoning the minimum wage would have little or no adverse economic effects. Indeed, it would most likely boost employment.