Debate Nirvana

The living wage poses a big threat to cities’ economic health, because the costs and restrictions it imposes on the private sector will destroy jobs—especially low-wage jobs—and send businesses fleeing to other locales. Worse still, the living-wage movement’s agenda doesn’t end with forcing private employers to increase wages. It includes opposing privatization schemes, strong-arming companies into unionizing, and other economic policies equally harmful to urban health.

In the 1990s in Baltimore, living wage was established, and as a result,  Baltimore saw its economy crash and burn with 58,000 jobs disappearing, even as the rest of Maryland added 120,000 jobs and other cities across the country prospered. The living-wage bill was just one expression of a fiercely anti-business climate that helped precipitate Baltimore’s economic collapse.
Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers.

The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July. The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working.

David Neumark, professor of economics at Michigan State University, and William Wascher, a researcher with the Federal Reserve, found that minimum wage hikes decrease the proportion of teenagers enrolled in school. In states which allow students to drop out of school before they are 18, a 10 percent increase in the minimum wage caused teenage school enrollment to drop by two percent. In states which require students to stay in school until they are 18, raising the minimum wage had no effect. In sum, when students have the option, higher minimum wages motivate some to leave school and start working.

Another recent paper confirms this conclusion. Duncan Chaplin of the Urban Institute, Mark Turner of John Hopkins University, and Andreas Pape of Michigan State University examined teenagers' continuation ratios-the proportion of a school's students in any year who either graduate or progress to the next grade level. They found that higher minimum wages decreased continuation ratios and led teenagers to drop out of school. Again, this result was present only in states where teenagers could drop out of school at younger ages.

From an economic, utilitarian perspective, unemployment creates a motive to participate in crime because crime is an alternative way of satisfying one’s economic needs. Second, unemployed individuals, must endure the psychological strain of not being able to achieve their financial aspirations. For reasons that need not be economically “rational,” such strains can also lead to criminal delinquency.