Contributed by the National Restaurant Association

(Washington, DC) – Does a minimum wage hike reduce poverty? Voters in six states including Arizona, Colorado, Missouri, Montana, Nevada and Ohio are being led to think so, but the National Restaurant Association notes that a new study by a respected economist concludes that minimum wage hikes may discourage employers from using the very low-wage, low-skill workers that minimum wages are supposed to help. Poor families could additionally be harmed if the unemployment effects are concentrated among workers in low-income families.

David Neumark, Ph.D., Professor of Economics at University of California, Irvine and a senior fellow at the Public Policy Institute of California, drew these conclusions from a wide body of existing research on the effects of federal and state minimum wage increases. The Show Me Institute, a Missouri-based research and educational institute, commissioned the study for Missouri’s Proposition B, which would raise the state minimum wage to $6.50.

"This study echoes the same conclusions of decades of research—raising the minimum wage is a poor tool for fighting poverty," said Tom Foulkes, vice president of state relations at the National Restaurant Association.

Neumark’s study notes that when the price of unskilled labor rises, employers likely look for less costly alternatives. A manager might respond to a minimum wage hike by replacing three less-skilled workers with two more-skilled workers, or by investing in equipment that allows the restaurant to produce the same amount of food with fewer workers. Neumark notes that the empirical evidence tends to confirm these predictions. Furthermore, minimum wages tend to reduce the education, work experience, and job training of low-income workers over the long-term. As a result, fewer people will be able to eventually obtain better-paying jobs.

Economic experts have long argued that increases in the minimum wage results in fewer job opportunities for entry-level workers.

Former Federal Reserve Chairman Alan Greenspan has pointedly stated, "The reason I object to the minimum wage is I think it destroys jobs, and I think the evidence on that, in my judgment, is overwhelming."

Greenspan’s view is supported by research from Cornell University, the University of Connecticut and the Lewin Group—which found that vulnerable young adults including those without a high school diploma, young African American adults and African American teenagers disproportionately suffered the adverse employment impact of minimum wage hikes.

Federal wage mandates have had a dramatic impact on restaurant industry employment. An analysis based on a nationwide survey of 1,000 restaurant operators showed that over 146,000 jobs were cut from restaurant payrolls, with operators postponing plans to hire an additional 106,000 new employees after the last federal wage increases.

"Voters need to use their hearts and their heads when considering raising their state’s minimum wage," said Foulkes. "They may be voting workers right onto the unemployment line, particularly the least-skilled—the very people wage hikes are supposed to help."

View a summary of the Show Me Institute study at: http://showmeinstitute.org/smi_briefing_2.pdf

Or the full study at: http://showmeinstitute.org/smi_study_2.pdf