Minimum-wage Laws Destroy Jobs, Increase Crime

Vermont Sen. Bernie Sanders may not be the Democratic presidential nominee in 2016, but his influence can be seen in the $15-an-hour federal minimum wage that is part of his party’s platform in Philadelphia.

The direct and immediate consequences of a higher wage floor on the entry-level job market are well known: fewer jobs for fewer people.Less discussed are the longer-term adverse outcomes for young people who can no longer find work at artificially high wages. If delegates to the Democratic convention in Philadelphia this week need a striking example of why a 107% increase in the federal minimum wage to $15 an hour is a bad idea, they need only travel a few miles north of the city’s convention center on Broad Street.

In the heart of North Philadelphia—represented by ZIP Codes 19121, 19122, 19132 and 19133—the unemployment rate for teenagers averages 42%, according to 2014 data (most recent available) from the Census Bureau’s American Community Survey. The employment ratefor teens residing in these ZIP Codes is an astonishingly low 14%—only one in seven has a job. (Nationwide, roughly one in three teens is employed.) Young adults in North Philadelphia ages 20 to 24 don’t fare much better: Their jobless rate averages 28%.

The city’s north side faces these crisis-level rates of youth joblessness with a starting wage—$7.25 an hour. If anything, the current minimum wage is too high, given the large numbers of unemployed youths who can’t find a job. The consequences of more than doubling it to $15 an hour would be disastrous.

By significantly reducing job opportunities at the bottom end of the career ladder, a higher minimum wage increases the likelihood that unemployed teens will seek income elsewhere. A 2013 study by economists at Boston College analyzed increases in state and federal minimum-wage levels between 1997 and 2010. It found that low-skill workers affected by minimum-wage hikes were more likely to lose their jobs, become idle and commit crime. The authors warn that their results “point to the dangers both to the individual and to society from policies that restrict the already limited employment options of this group.”

This troubling outcome is one that U.S. cities can barely afford. North Philadelphia already struggles with some of the city’s highest rates of violent crime. In 2016 homicides in Philadelphia are up 10% over this time last year, and other U.S. cities are facing similar challenges. A May report from the Congressional Budget Office finds that one in six young men nationwide is either unemployed or incarcerated; among young black men, this figure jumps to nearly one in three. The CBO report pointed to higher minimum wages as one possible cause of this crisis.

The solution to high rates of youth crime and youth unemployment is a job, not a government-mandated raise in wages. A 2014 study published in the journal Science analyzed the impact of a summer jobs program in Chicago on the criminal activity of more than 1,600 disadvantaged high schoolers. For those teens who participated in the jobs program, there was a remarkable 43% reduction in arrests for violent crimes (nearly four fewer violent crime arrests per 100 teens) during a period of more than one year after the program ended. That result should be of particular interest to Chicago’s Democratic city council, as it presides over a July 1 minimum-wage increase to $10.50 an hour in the midst of the city’s most-violent year (by homicides) in more than a decade.

President Obama has spoken of the urgent need to connect young adults with job opportunities; Sen. Sanders has called youth unemployment “a national tragedy.” They’re both right. So it’s unfortunate to see their party embrace a labor-market policy that will reduce employment opportunities and make the tragedy much worse.

Mark J. Perry, Ph.D.
Scholar at The American Enterprise Institute
Professor of Finance and Business Economics
School of Management, University of Michigan-Flint
2111 Riverfront Center, Flint, MI 48502-1950
Michigan Office Phone: 810-424-5413
Washington, D.C. Phone: 202-419-5207
Personal Website: www.umflint.edu/~mjperry
Carpe Diem Blog: www.aei.org/publication/blog/carpe-diem
Twitter: twitter.com/Mark_J_Perry

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