Higher Minimum Wage ... Lower Jobs Growth

It sounds like a great idea to help lower wage workers and college graduates -- and the U.S. economy.

Democrat lawmaker Rep. Jesse Jackson Jr. is now backing a bill to increase the federal minimum wage to $10 from $7.25. His logic: Increase the purchasing power of low-income, low-wage workers, you’ll increase spending, and that can only help a soggy U.S. economy, two-thirds of which is built on spending. Lower income brackets tend to spend more, too.

The lawmaker from Illinois said at a Capitol Hill news conference the economy would rise by increasing “the purchasing power of millions of low-income and low-wage workers,” with a hike in the federal minimum wage.

Rep. Jackson added: “We’ve bailed out banks, we’ve bailed out corporations, we’ve bailed out Wall Street..Now it’s time to bail out working people who work hard every day and they still only make $7.25.”

But businesses who have lived with minimum wage increases and economists who have studied the issue say minimum-wage hikes don’t increase spending, nor lower unemployment. On the contrary, businesses say they have to use more profits for pay, cutting into job creation, especially when the economy is stuck in neutral gear. Minimum wage hikes tend to sail through when the economy is at full throttle.

Congress last visited the minimum wage issue several years ago, approving a hike to $7.25 from $5.15 over two years; 18 states now have their own minimum wages now higher than federal minimum.

Cornell University’s Industrial and Labor Relations Review reported a study which showed that the minimum wage hike earlier this decade actually led to a roughly 20% cut in jobs for young, low-skilled workers. Meaning, the last rung on the employment ladder gets knocked out.

Already, the National Restaurant Association has said a hike would cost jobs. So does the U.S. Chamber of Commerce. So warns the National Federation for Independent Businesses.

Do you see the rise in self-checkout lanes in stores like Home Depot (NYSE:HD) or supermarkets? Haven’t you been carrying your own groceries to your car, doing your own windshield cleaning at the gas station, and pumping your own gas lately?

And check out the chart from FOX Business senior editor Charles Brady, which shows a direct correlation between the hike in the minimum wage over the last 10 years, and youth unemployment: