Minimum wage hikes hurt workers they try to help


Chicago-Sun Times
By: Jason Stverak
November 15, 2013

A new Gallup poll found that over 75 percent of Americans support raising the minimum wage to $9 per hour, suggesting that more people are looking at this issue with their hearts rather than their heads. Raising the minimum wage feels like a great way to offer a hand to the working poor, but it's just as likely to cut off the hand that feeds them and tighten the job market for young and otherwise low-skilled workers.

When governments raise the minimum wage, advocates often argue that the hike will combat poverty and inject more money into the economy, but most data shows these claims are simply untrue. Economists at Cornell and American University found that, of the 28 states that raised their minimum wages between 2003 and 2007, there was no discernible associated reduction in poverty. Moreover, studies show that minimum wage increases have no significant effect on the economy on the whole.

In fact, many minimum wage increases inadvertently harm the very people they are trying to help. Studies show that higher minimum wages tend to increase unemployment among low-skill workers, to the tune of 3.6 percent for each 10 percent increase in the minimum wage. When governments mandate a minimum wage, they effectively set a minimum standard of productivity for employees. Because many low-skill workers -- particularly teenagers, the uneducated, and the disabled -- are simply incapable of producing enough to justify being paid at $7.25 per hour (the current federal minimum wage), much less $9, the minimum wage law severely restricts their opportunities. In the absence of wage mandates, employers could afford to bring low-productivity workers on board without accruing a loss by paying them at their level of contribution.

The media like to paint a picture of a "typical" minimum wage-earner as an inner-city single mother working long hours to feed her family -- the type of worker who, if her job wasn't cut as a result, would benefit most from a minimum wage hike. However, this stereotype only fits a small minority of those who make minimum wage. Minimum-wage earners are over twice as likely to be children than have children -- 40 percent are teenagers living at home with their family, and only 16 percent support dependents. The average minimum-wage earner lives in a household with a median income of about $47,000, just a hair below the national average -- suggesting that many are secondary earners in middle-class homes. Many others who earn the minimum wage are college and graduate students working full-time to help fund their education.

When the minimum wage rises, these workers fall victim to a needless numbers game. In many industries that offer minimum-wage positions, including retail, housekeeping, and food services, the profit margin is razor-thin, and employers simply cannot afford to take on additional costs -- even a few dollars per employee per hour -- without raising prices, cutting hours, or making layoffs. It's no wonder that the recent rise in minimum wages has correlated with all-time high teen unemployment figures -- the jobs long considered essential to a young person's growth and maturity are now made expendable by laws that put the squeeze on small businesses.

Americans may compare minimum-wage earners to the wealth of Fortune 500 CEOs and see injustice. But a closer look at the facts shows that minimum wage injustice hits much closer to home, in the form of a pizzeria owner who has to lay off his dishwasher, or the factory that can no longer afford to keep a disabled assembly worker. The jobs once available to Americans at the low end of the labor pool are disappearing, and every time government makes a well-intentioned attempt to help these workers, they only curb opportunities.

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This page contains a single entry by CFED published on November 18, 2013 2:35 PM.

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