Minimum wage policies—Part one

Since its introduction in the 1938 Fair Labor Practices Act, the intent of the federal minimum wage has shifted from eliminating child labor exploitation to its current goal of combating poverty. And something else has changed as well!
I believe the minimum wage debate must now be argued on two different levels because the two general approaches being proposed have very different economic impacts. First we should discuss the impact of an incremental increase of a dollar or two. Then we should have a separate analysis and debate about the recent push for a $15 minimum. While I strongly believe minimum wage policies should be a state and local issue, the feds are now becoming seriously involved. First I’ll deal with the more modest incremental minimum wage increases.
Incremental minimum wage increases
Today, the expressed goal of incremental minimum wage increase legislation is to improve the economic well-being of the poorest working Americans. This is very noble, to be sure, and a goal I enthusiastically support. But before making a decision on how to address our goal of poverty reduction, we should look at the predicted results of the policy, and not just rely on good intentions. Let’s try to emphasize examining predictable outcomes when analyzing minimum wage increases. Consider the following:
• Most people are poor because they don’t have full time jobs, or have no job at all. Minimum wage increases tend to make this worse.
• Raising the minimum wage (particularly the large increase being discussed recently) measurably reduces the number of minimum wage jobs available. The unemployed are pushed further away from likely employment.
• Increases in the minimum wage tend to affect teenagers and secondary wage earners—NOT the working poor.
• About 63 percent of minimum wage workers are second or third earners in families earning at least twice the poverty level.
• Only approximately 11 percent of workers who earn the minimum wage live in poor households—about half of what it was five years ago.
• For those living in poverty, an increase in the minimum wage might be partially “given back” because other benefits they are receiving are “means tested.”
• Workers are not “locked into” minimum wage jobs. Two thirds earn a raise within a year, and most are demonstrably “upwardly mobile.”
• A recent proposal by Obama to raise the minimum was predicted by the Congressional Budget Office to cost several hundred thousand jobs.
Analyzing the general public’s attitude is difficult. Approximately 72 percent approved of raising the minimum wage if they were assured it would have no negative effect on jobs. But, when fewer jobs or layoffs are mentioned as a variable, the approval goes down to 38 percent. (Source: Reason-Rupe poll.)
Professional economists are clearly divided:
• In a Wall Street Journal survey of economists, 54 percent of the responders were against a recent Presidential minimum wage increase proposal.
• The Washington Times reported that economists David Neumark and William Wascher, based on their meta-analysis of more than 100 studies, concluded that 85 percent of the studies reviewed indicated “adverse consequences” – i.e. fewer jobs!
• The Federal Reserve Chairman, Janet Yellen, seemed to accept the CBO conclusion re: the impact on jobs of the minimum wage increase. She stated she “wouldn’t want to argue with their assessment.”
• Economist Thomas Sowell reported that “A survey of American economists found that 90 percent of them regarded minimum wage laws as increasing the rate of unemployment among low-skilled workers. Inexperience is often the problem.”
Bottom line: the goal of incremental minimum wage increases is noble, but these dollars predictably won’t end up helping the intended target, the working poor. All those good intentions will most likely be left unfulfilled.
Next time I’ll discuss the huge transformational minimum wage increases that are now being seriously considered and even implemented—the $15 minimum wage.

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