Wednesday, January 20, 2010

Attack of the Minimum-Wage Increase

Copyright, The New York Times Company

After initially increasing by almost three million during this recession, part-time employment fell sharply during the last five months of 2009. The federal minimum wage hike on July 24, 2009, is probably to blame.

The red series in the chart below is the number of people employed part time, as measured by the Census Bureau’s monthly survey of United States households. Part-time employment increased for nine months in a row from September 2008 until July 2009, for a total increase of almost 2.5 million positions over that time. (The household survey is small enough that the month-to-month fluctuations can look a bit random, but economists find it the best measure of labor-force trends that last more than a month or two.)

At first glance, any employment increase seems at odds with the basic current of this recession, which has been month after month of heavy job losses. In fact, full-time employment fell by 11 million, and much of the part-time employment can be understood as a partial offset to those losses.

For example, some people laid off from their full-time jobs are having trouble finding another suitable full-time job, so they are working part time while they wait. Part-time jobs pay less than full-time jobs — even on an hourly basis — so some employers may be using part-time employees to accomplish tasks where they formerly might have used full-time jobs.

From December 2007 until July 2009, for every five full-time jobs lost, part-time employment increased by one job. The blue series shown in the chart aims to predict the creation of part-time jobs from the data on full-time jobs alone, by assuming that each five full-time job losses created one part-time job. The series shows how this approach closely fits not only the overall increase, but also several of the changes in trend over that period.

Since July 2009, full-time employment has continued to fall, but we no longer see the partly offsetting part-time employment increase. The July 24 minimum-wage increase most likely changed that pattern.

In other words, if the minimum wage had stayed at $6.55, part-time employment probably would have closely followed the blue series in the chart, as it did until July 2009.

The federal minimum wage prohibits employment that compensates (not including fringe benefits) the employee less per hour than the federal minimum — $6.55 before July 24, and $7.25 since then. Thus, a $7-an-hour job was legal for most of July, but has been illegal since then.

Many economists expected that the new prohibition on jobs paying between $6.55 and $7.24 would disproportionately affect part-time jobs. After all, recall that part-time employment typically pays less per hour than full-time employment does.

Some of those employers raised their pay to conform to the new minimum, but others were expected to eliminate some of their part-time positions. That’s likely why the data show that, starting with August 2009, part-time employment began to reverse its prior trend.

With all of this recession’s significant labor market problems, it’s too bad that an ill-conceived and unnecessary minimum-wage law added hundreds of thousands of people to the list of those who today cannot find jobs.


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