One of the Democrats top agenda items for Congress in 2007 is an increase in the minimum wage. They play on the emotions of people by trotting out single mothers scrapping by on $5.15 an hour, suggesting she is the norm for minimum wage workers.
But, is that the truth and how much will a raise in the minimum wage help low income workers? Will it help at all or could it do damage to the economy?
Heritage Foundation has done considerable research on who exactly earns the minimum wage, the best ways for workers to increase their wages and the negative impact of a minimum wage hike on entry-level workers.
First of all a raise in the minimum wage will not affect many workers at all. Over 20 states have a higher minimum wage than the federal one and in most places the market-induced minimum wage is higher still. Only 1.1 percent of the total working population in America earns minimum wage or less – less than a million and a half people.
A look at additional statistics tell a much different story that the liberals in Congress want to paint. The majority of minimum wage workers (53%) are under 25, meaning that most are in their first job and are not the primary bread-winner of their home. The majority (61.7%) are working part-time. Only a small portion of the workers are part of families that are at or below the poverty line (19.5). An overwhelming majority of workers are white (81.7%). The average family income for a minimum wage worker is close to $50,000 ($49,885).
Even for older workers the statistics do not point to a dire need for the federal government to step in and demand a business pay a higher wage. Looking just at workers over 24: the majority are working a part-time job (56%), they have an average household income of $33,600 well above the poverty line ($19,806) and only 23% live at or below the poverty line while 45% have incomes over twice the poverty line.
The rampant single parent minimum wage worker is also a canard. Of workers earning minimum wage only 6.1% are single parents over 25, which is less than the percentage for all hourly wage workers (6.3%).
While emotions may demand that we “do something” about the minimum wage, the facts show that nothing needs to be done to fix a problem that doesn’t exist.
So while a minimum wage hike would not significantly better poor working families, it may actually hurt them.
A rise in the minimum wage leads to higher drop-out rates. Because the majority of minimum wage workers are teenagers, when they see an increase in pay it causes them to think they can do without school. David Neumark, an economics professor and researcher with the Federal Reserve, found that in states which allo students to drop out before they are 18, a 10% increase in the minimum wage caused teenage school enrollment to drop 2%. Another paper also demonstrated the same results – the higher the minimum wage, the lower the continuation ratio of teenagers in schools and an increase in drop outs.
One of the papers also demonstrated that poverty rates do not change with an increase in the minimum wage. The research showed that while there was an increase in the probability that poor families moved past the poverty line, the wage hike also increased the chances that other families fell into poverty.
An increase in the minimum wage leads to a higher unemployment rate, adversely affecting lower income workers. It is siimply mathematics – if a company paying part of their work force minimum wage only has a certain amount of money for wages, then an increase in the wage of one person would lead to either the decrease of someone else’ wage or an elimination of jobs completely.
Those who are often fired are usually the ones that the policy change was intended to help the most – the poorly educated adult, struggling to make it. Teenagers come and go, allowing companies to pay them minimum wage while hiring the best of the age group. Those with more education have to be trained less and have more abilities, making them harder to replace.
A forced increase in the wages a company pays will harm the economy in two different avenues, both of which cause the poorest to suffer the most. In addition to causing an increase in unemployment, it may also lead to higher prices.
A minimum wage increase does not force companies to make less money, it causes them to make that money up somewhere else – either by reducing their work force or by raising their prices. They pass their costs on to their workers or their consumers – again adversely impacting the poor.
So while it may seem heartless to argue against a minimum wage increase, according to the facts, not the emotions, an increase would harm the poor more than it would help.