The effects of raising the minimum wage

by Grace

Raising the minimum wage may feel good, but don’t count on it to reduce poverty.

A town near Seattle may raise the minimum wage to $15 an hour. Massachusetts is debating raising the hourly minimum to $11. And in the nation’s capital, Senate Democrats are pushing a bill that could raise the federal minimum wage to $10.10.

Most minimum wage earners are between the ages of 16 and 24.

20131202.COCMinWageEarnersAreYoung2

… Less than a quarter of minimum wage workers live at or below the poverty line, while two-thirds come from families above 150 percent of the poverty line. In fact, the average family income of a minimum wage worker exceeds $53,000 a year.

How do workers making $7.25 per hour live in families making over $50,000 a year? Because most of them are not the primary income earner in their families—many are students. Over half of minimum wage workers are under 25, and better than three-fifths of those report being enrolled in school. Two-thirds of minimum wage employees work part time.

Raising the minimum wage would reduce entry-level jobs.

The larger problem facing poor families is a lack of employment opportunities. Only 9 percent of individuals in poor families work full time, while 25 percent work part time. Fully 67 percent do not work at all.

Raising the minimum wage would make this problem worse. Employers would respond to the higher costs by creating fewer entry-level jobs, making it harder for disadvantaged workers to gain the skills necessary to move into higher paying positions.

Raising the minimum wage would not reduce poverty rates.

A higher minimum wage would help some workers, but few of them are poor. The larger effect is hurting the ability of potential workers living in poverty to get their foot in the door of employment. A minimum wage hike might help politicians win plaudits from the press, but it wouldn’t reduce poverty rates.

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7 Comments to “The effects of raising the minimum wage”

  1. I don’t buy the arguments of the Heritage Foundation—they have a long history of justifying transfer or more power and wealth to the superwelathy through bogus economic claims.

    Their argument (if believed) should mean that we pay $0, since then an infinite number of people can be employed. The goal of employment is for people to be able to support themselves without needing additional support from the government (at least the Heritage Foundation is strongly opposed to the government giving money to any but super-rich defense contractors). The minimum wage should be a living wage—just barely enough to live on without welfare payments. The current minimum wage is too small for that, and is substantially lower than it used to be (in constant dollars): http://www.infoplease.com/ipa/A0774473.html

    Bringing the minimum wage up to 1968 standards would be good, but even returning to 1974 standards would be a big help. (Returning to 1974 levels would require a 31% increase in the current minimum wage, to $9.50/hour.)

  2. “Their argument (if believed) should mean that we pay $0, since then an infinite number of people can be employed. ”

    And the opposing argument, if we’re putting it in those terms, would be that if we pay $100/hour then everyone would be rich.

    When the argument for a higher minimum wage is that the “minimum wage should be a living wage—just barely enough to live on without welfare payments”, my question is should we then pay teens living at home a living wage? I don’t see the logic in that argument since so many minimum wage workers are not exclusively responsible for supporting themselves.

    The minimum wage peaked in the 1960s, but it has been on an overall upward path since inception, in real terms from $4.07 to $7.25 today. I’m not sure who gets to pick what level it should go to today. I think most wage earners have lost ground in recent years.

    http://economy.money.cnn.com/2013/02/14/minimum-wage-history/

  3. Yes, most workers have lost ground in recent years, as more and more of the wealth in the country is concentrated in the top 0.1% of the population (which the Heritage Foundation policies are designed to encourage). Evidence from previous increases in minimum wage show a general increase in wealth in the lower half of the population as non-minimum-wage workers also get small increases to avoid excessive compression of the salary scale. The extra money this takes comes primarily from the very wealthy, as stock dividends are slightly decreased (though the extra wealth at the bottom has generally resulted in more consumer spending, so a healthier economy overall).

  4. If the objective is a redistribution of income from the wealthiest to the poorest, then the earned-income tax credit seems better and more direct than increasing the minimum wage.

    http://gregmankiw.blogspot.com/2013/12/the-eitc-is-better-than-minimum-wage.html

  5. Using the Earned Income Tax Credit instead of raising minimum wage amounts to a subsidy for the employers of the minimum-wage workers. Quite frankly, Walmart gets more than enough subsidies already.

  6. I’m not in favor of most corporate subsidies. It seems to me that both methods create a transfer from wealthier taxpayers to poor people. The exact paths may differ, but ultimately it all comes out of taxpayer pockets.

  7. Raising the minimum wage does not increase tax-payer burdens—many of the companies that pay minimum wage have found all kinds of ways to avoid paying any taxes. Making them pay their workers more probably *reduces* the burden on tax payers, by reducing welfare rolls.

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