Minimum Wage

Minimum Wage

There is an argument that we should raise the minimum wage to help the poor Americans; those on the bottom of the income chain, stuck in dead-end jobs; single parents, sole income earners, and so on. This is usually said by people who know better, or parroted by people who do not.

The first thing to do with any new tax or policy is look at the policy/ramifications and follow the money (look at the supporters, and figure out why).

There’s a huge difference between regions of the country, their cost of living, and what the minimum wage means. The difference in cost of living between many cities is as much a 3:1 ratio, a larger difference if you look at rural versus urban areas. So a federal minimum wage makes absolutely no sense, unless it adjusts for these differences (which it does not). $5.15/hr in Mobile, Alabama is probably more real money than $15.45/hr in Los Angeles or New York. State based minimum wages are dumb, because cost of living varies so much across the State. Federal Minimum wage laws are dumber, because the cost of living varies even more across the nation.

Really a Federal Minimum Wage is a way for larger/richer States to attack/tax labor in smaller developing states and rural areas by artificially driving up their costs of labor to more closely match their own; that will slow the rate at which the jobs leaving the richer/more expensive states and go to the cheaper and faster growing ones. They aren’t out to help poor appalachians or working poor in steel towns, they’re out to harm them. Driving up the cost to employ people in rural areas doesn’t help them, but is a win for the big cities/states. That is why Californians, New Yorkers, Taxachussets, etc., are always for raising the minimum wage for everyone ELSE, even though they have ALREADY raised it locally. They are free to raise it for themselves as much as they want, and already have higher than the federal minimum. But they want to tax the smaller states and disguise it as “help”. They know that raising minimum wage means more expensive goods for everyone (which harms the poor more), fewer opportunities for all (which hits the poor harder), more jobs going overseas, and so on. But it hurts the poorer people and smaller states more, as they can better take the negative impacts, so that’s a win for them. And you can’t convince me that career politicians with staffs of researchers aren’t smart enough to have had someone explain the costs to them at least once. They just know they get the double-whammy of looking good to their ignorant constituents (much easier than trying to educate them on the facts of government or the consequences of federal minimum wage), and they get to help their states/cities out (while screwing the poorer communities). So supporting the minimum wage is just a vote to let the most populous and rich states bully and bureaucratize the more agile, competitive and smaller states, all in the name of the greater good. All you have to do is follow the money, and who supports it the most.

But let’s pretend we don’t know that, and just look at who the minimum wage earners are, and who raising it would help. Just 1.9 percent, or 404,000, of the 20.8 million poor Americans over the age of 15 would be affected by an increase in the minimum wage to $6.65 per hour (the largest jump in history). Who are the 1.6 million paid-hourly workers who earn minimum wages;

1) 53% of minimum wage-earners are teenagers (up to age 24). Over 63 percent are enrolled in either high school or college. More than half (54 percent) of these young workers live in families with incomes two or more times the official poverty level for their family size ($50,500 average). The average income for single young workers is $11,200. Only 18% live in poor families (compared to 17% of the population). Do college and high school kids really need a raise that badly? Most are not people trying to make ends meet, but just have some income while going to school.
2) Average household income of a minimum wage earner: $49,885.
3) Over 57% of all minimum wage workers work part-time (year round) voluntarily. Only 25 percent work full-time year-round, while over 28 percent work part-time for only part of the year.
4) Full time workers in higher paying jobs that take a second part-time minimum wage job (often short term) is another group; think of teachers taking a job during summer, or some guy taking a job at christmas to buy a few extra gifts.
5) A large group of minimum wage workers is retired people using minimum wage to supplement their retirement income or save their marriages by getting out of the house; but they don’t want o earn too much in a year, or they lose their Social Security benefits.
6) Another large group is spouses of a full time worker, working part or full time, just to augment their income or to get out of the house.
7) The racial breakdown is mostly white (or hispanic), with Asians and Blacks under-represented.
8) The average minimum wage contributions account for 35 percent of total family income
9) 26% are married family heads or spouses, 11% are single family heads, and 17% are single people (another 3 percent are other relatives). But these aren’t necessarily their only jobs. Less than 5% are sole breadwinners that work full-time year-round.

Note which group you aren’t seeing as significant; those full time minimum wage, single parents, or poor people using their one minimum wage job to make ends meet.

Only one in five (20%) minimum wage-earners lives in a family that earns less than the poverty line; which is set at about 17% of the population. Meaning there’s very little over-representation of poverty in the minimum wage earners. As seen from the above statistics, most of them are not sole-providers but supplementary incomes. The myth that minimum wage needs to be a sustenance income is perpetuated by those ignorant of the facts, or those who are willing to deceive the public for political rewards.

Very few are single parents working full-time to support their families—no more than in the population as a whole. 6.1 percent of adult minimum wage earners are single parents working full time, as compared to 6.3% of all adult hourly workers. Single parenthood is actually under-represented in minimum wage jobs. Raising minimum wage doesn’t help the problem.

Assuming raising the minimum wage has no costs (which is false), raising the minimum wage helps 10 teenagers or 19 other people before it helps one single parent trying to make ends meet on minimum wage. But you’re helping politicians look like they care, when if they really did, they’d target the people they wanted to help, instead of preying on the ignorance of their constituency (especially Democrats). Is that really your measure of success?

Nearly two-thirds of minimum wage workers move above the minimum wage within one year, and the median raise for those workers is over 10 percent. For full-time minimum wage workers, the median first-year raise is almost 14 percent. Already around the amount proposed by raising minimum wage. Entry-level jobs are not lifelong dead-end jobs. These jobs allow Americans to establish a track record of work that creates opportunities for better paying jobs. Raising the cost of those jobs, decreases the number of opportunities. Most are the rest are supplemental jobs; that will quickly go away if they become too expensive. You’re hurting more people than you help.
$6.65/hour would cost private sector employers at least $30.2 billion. Money doesn’t grow on trees, where is that money going to come from? A 1999 survey of small businesses by the Jerome Levy Economics Institute shows that raising the minimum wage to $6.00 per hour would cause more than 20 percent of small-business owners to reconsider their employment decisions. Small businesses account for most of the jobs in this country. The Congressional Budget Office estimates the potential job losses associated with an increase in the minimum wage to $6.65 at roughly 200,000 to 600,000 jobs. So you really only help around 6% of the 404,000 workers, or 24,000 families in the target situation, and you negatively impact 200,000 – 600,000 others, and cost the economy $30 billion dollars. Here’s an idea; give each of the 24,000 families that would be impacted by a minimum tax increase, $10,000/year in cash for just being able to fog a mirror; they’d only earn an extra $2,500/year with the min. wage increase so this would have a 4x bigger impact on those people’s income, and it would save employers/economy $29.7 Billion! You could just give the entire population a $2,500 tax credit and help the poor and target demographic out just as much, without harming businesses.

Now some might not believe the estimates of the cost. Well, history supports it. Increases in the minimum wage in 1990 and ’91 led to a 12 percent decrease in employment opportunities for teens, according to calculations based on Bureau of Labor Statistics data. Minimum-wage hikes in 1996 and ’97 led to less-dramatic but still substantial decreases in opportunities for teens; during one of the hottest economies of our lifetime. In neither case did it show any marked improvement for single-Mom’s, or those who are poor. But teens aren’t the only ones who lose out. Studies show that higher minimum wages do not reduce poverty rates, and in fact, minimum-wage increases have been linked to increases in welfare caseloads and for some subgroups, minimum wage increases appeared to raise the level of poverty! This makes sense; jobs dry up, opportunities/growth slow down, more jobs go overseas, and the lowest end suffers the most. Our economy eventually adjusts to the higher costs, and grows through it anyways; but that still negatively impacts far more people than it helps.

And if you’re thinking of sustaining income; full time minimum is $10,300/year (plus another $5,000 in benefits/costs by the employer). Now add in the government programs, federal alone is conservatively estimated at $11,000/year. That’s $26,300 total, before talking about state, local and private assistance. The problem isn’t always what people make, but how the government accounts for it. What is sustaining? Lets define that first, and then figure out how to get there.

If you understand poverty, 75% of it is due to underemployment. Much of it is short term (more unemployment that effects people in one year). Much of the rest is due to under-education, immigration, fatherless families, and finally bad social program programs (which holds more people down than they helps out). Explain to me how raising minimum wage helps with any of those things? I can explain how fewer teenage jobs means more teenagers doing other things, like getting pregnant. Fewer opportunities for the less educated and immigrants doesn’t help them out, but hurts them. And so on. Indexing child care subsidies against hours worked (and cost of living in area lived) would do more to help the single parents (by FAR) than a minimum wage hike, and cost the nation a fraction as much. So target the right people, instead of offering blanket subsidies to the wrong ones. Instead of raising the minimum wage, Congress should look at other ways to aid the working poor that actually focus on providing help to those who need it.

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http://www.heritage.org/Research/Labor/minimumwage.cfm
http://www.heritage.org/Research/Economy/wm1186.cfm
http://www.heritage.org/Research/Economy/wm1181.cfm
http://www.heritage.org/Research/Economy/wm1176.cfm
http://www.heritage.org/Research/Labor/WM19.cfm
http://www.heritage.org/research/taxes/bg1418.cfm
http://www.heritage.org/Research/Economy/wm676.cfm
http://www.census.gov/prod/2005pubs/p60-229.pdf