Why government minimum wage hikes put the vulnerable at risk

The government has accepted the Low Pay Commission's recommendations for national minimum wage rate increases:

The following rates will come into effect on 1 October 2013:
The adult rate will increase by 12p to £6.31 an hour
The rate for 18-20 year olds will increase by 5p to £5.03 an hour
The rate for 16-17 year olds will increase by 4p to £3.72 an hour
The apprentice rate will increase by 3p to £2.68 an hour.
The accommodation offset increases from the current £4.82 to £4.91

These wage hikes pose very real threats to workers and to employers. While many question whether increases to the national minimum wage result in a high number of layoffs, what is often given less consideration is the effect of a minimum wage policy on the creation of new jobs (our emphasis):

The empirical impact of minimum wage laws on youth unemployment has been documented extensively, such as in studies by Profs David Neumark and William Wascher. In a 2000 paper, Neumark and Wascher reviewed the payroll records from fast food restaurants in New Jersey and Pennsylvania to determine the impact of minimum wage increases on youth employment in those restaurants. His study contradicted a well-known 1994 paper by Card and Krueger which found that there was no unemployment effect.

The main reason for this difference may be that Card and Krueger’s earlier study relied on poor quality data and took a narrow view of employment. Neumark and Wascher argue that the Card and Krueger study was based on unreliable survey methods of phoning restaurants up and asking about employee numbers, which could be at risk of being misunderstood by shift managers. Card and Krueger’s study measured employment in terms of the number of employees rather than employment hours, and consequentially did not factor in the potential for workers being shifted on to fewer hours without being fired outright. With new payroll data, this omission was corrected in the Neumark and Wascher study.

Neumark and Wascher’s study found that the elasticity of employment with respect to the minimum wage was -0.24. In other words, a 10% increase in the minimum wage led to a 2.4% decrease in the demand for labour.

(Adam Smith Institute)

Hikes in the minimum wage are beneficial to those already in work, but make getting a job harder, especially for the most vulnerable. Economists suggest that the young or unskilled may suffer most.