"We have to stop touting the minimum wage
as a completely harmless policy, or as some kind of remedy for
poverty and income inequality… it is neither."
LOS
ANGELES, June 20, 2024 /PRNewswire/ -- In the
past 18 months, California's
unemployment rate has jumped to the highest in the nation and a new
analysis by Beacon Economics suggests that this peculiar
increase could be a direct result of the state's recent minimum
wage hikes. Most concerning, according to the report, is that the
current unemployment effect is specifically harming some of
California's most vulnerable
residents—the state's youth.
The new report highlights the fact that 90% of newly
unemployed Californians over the past year and a half are under the
age of 35 with the hardest hit group being teenagers. "This loss of
youth work opportunity carries with it real long-run harm," said
Christopher Thornberg,
Founding Partner of Beacon Economics and co-author of the new
analysis. "It not only denies younger workers a critical source of
income it deprives them of work experience that has been
empirically shown to improve their chances of long-run
success."
While the recent rise in unemployment in California has occurred in tandem with the
state's minimum wage hikes, the relationship likely extends beyond
mere correlation. According to the analysis, the jump in
unemployment is incongruous with other measures of the California economy, which have continued to
expand at a respectable rate. In fact, both output and household
income in the state are robust and growing either faster than or
similar to the nation overall. Yet, the unemployment rate in
the United States as a whole has
barely budged in the past 24 months.
And there is yet another anomaly: throughout the recent rise in
unemployment, there has been no corresponding increase in
unemployment insurance claims. If laid off tech and entertainment
industry workers were driving California's higher unemployment rate, it
would almost certainly be reflected, at least to some degree, in UI
claims, according to the analysis.
"For far too long, researchers and advocates alike have held up
the minimum wage as a harmless and effective policy remedy for
poverty and income inequality, but it is neither of those things,"
said Thornberg. "Evidence has shown us that minimum wages
don't do much to address the ills they are intended to correct, but
carry a substantial cost, particularly for our state's future
workers."
Although well intentioned, Thornberg, and co-author Niree
Kodaverdian, argue that higher minimum wages cause prices to
increase, which end up reducing real incomes for lower-skilled
workers. Available data and past empirical studies show that wage
floors do very little to divert income from higher income workers
to lower income ones, which is how minimum wage laws are typically
characterized by proponents.
The specific effect on youth is caused because as labor costs go
up relative to other inputs, employers who might have used
lower-skilled, entry level workers, such as teenagers, move towards
hiring older, more experienced workers, according to the analysis.
The idea is that if an employer is legally obligated to pay a
higher wage, they will naturally hire more skilled and productive
workers to offset higher labor costs. Since those under age 25 make
up nearly half of minimum wage workers, this restructuring
disproportionally affects the state's youth.
The report firmly acknowledges the need for policies to help
alleviate the strain on lower income households in pricey
California but argues that this
particular policy remedy doesn't work as intended, and when pushed
too far, can inflict real harm on some of the state's most
vulnerable residents. Better policy options, according to the
authors, include the Earned Income Tax Credit, early childhood
education, and increased training for lower-skilled adults.
Beacon
Economics LLC is an independent
economic research and consulting firm based in Los Angeles. Learn more at
www.BeaconEcon.com
Contact:
Victoria Pike
Bond
Phone:
415-488-7195
Email:
Victoria@BeaconEcon.com
View original content to download
multimedia:https://www.prnewswire.com/news-releases/surge-in-unemployment-among-california-youth-linked-to-minimum-wage-hikes-302178621.html
SOURCE BEACON ECONOMICS