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Testimony before the Maine Joint Standing Committee on Labor, Commerce, Research and Economic Development on the Training Wage

April 5, 2017

In this testimony before the Maine Joint Standing Committee on Labor, Commerce, Research and Economic Development, Jesse Hathaway discusses a training wage proposal and the advantages it could create for young workers.

Testimony before the Maine Joint Standing Committee on Labor, Commerce, Research and Economic Development
Jesse Hathaway, Research Fellow, The Heartland Institute
Wednesday, April 5, 2017

Good afternoon, Chairperson Volk and members of the committee, thank you for giving me the opportunity to testify today.

My name is Jesse Hathaway. I am a research fellow for the Center on Taxes and the Economy at The Heartland Institute, a 32-year-old national nonprofit research and education organization.

Our mission is to discover, develop, and promote free-market solutions to social and economic problems.

The Heartland Institute is headquartered in Chicago, Illinois, and focuses on providing national, state, and local elected officials with reliable and timely research and analyses on important policy issues, such as the ones being considered today.

Today, the committee is considering a number of bills relating to employee compensation and wages.

For example, LD 774 proposes creating a “training wage” for younger individuals, just starting out in their careers and building work habits they’ll use in future jobs. LD 971 and 991 also make similar proposals.

Training wages, or youth minimum wages, have a proven track record of encouraging employers to hire younger individuals for these entry-level jobs. The training wage, an issue now being considered in Maine, is also commonly known as a “youth minimum wage” (YMW), is a policy idea has worked well when it’s implemented in other countries.

Here’s why: supply and demand.

We’re all familiar with the concept of supply and demand: the supply for any given good increases with the good’s price, but the demand for that good decreases with price. Employment is no different.

Minimum wages are a floor on the price of the “good” of employees. If mandatory price increases cause the price of filling an entry-level job to exceed the value of hiring one more employee, a business owner will choose to do without the job hire, or seek less expensive alternatives.

When a restaurant or a small business hires someone, they are betting that the worker will provide more value to consumers—and their business—than the cost of labor. Decreasing the risk of that bet, so to speak, makes small business owners more likely to take that bet. In other words, more people are employed.

Preston Cooper of the Manhattan Institute has suggested lawmakers in every state do what Maine is considering: creating a youth minimum wage.

“If all states and the federal government adopted a YMW of $4.25 for individuals aged 16–19, with no 90-day limit, the growth rate of employment for this group could increase by up to 8.9 percentage points, generating up to 456,200 additional jobs in the first year following enactment,” Cooper writes.

Economists at the University of California-Irvine and the Federal Reserve Board have studied the subject. They found about 85 percent of all credible studies on training wages demonstrate that the price floor is too high for less-skilled workers, such as young people.

Maine should consider adopting a youth minimum wage, so hiring young people and allowing them to learn how to work—including skills as simple as timeliness and customer service—while decreasing the marginal risk of hiring unproven workers.

Thank you for your time today. I’ll now take any questions you may have.

Author
Jesse Hathaway is a policy advisor for budget and tax issues at The Heartland Institute.
media@heartland.org @JesseinOH