Mythology Of The Minimum Wage

WS: Any Increase Likely To Hurt People Who Need The Most Help

(Weekly Standard)  This column was written by Whitney Blake.

---

The recently defeated minimum wage hike proposal in Congress has resulted in a regurgitation of economic misinformation. Here's a sampling of the propaganda:

Myth No. 1: Millions of "working poor" are trying to feed a family of four on a single income of $5.15 an hour. It's simply not fair or ethical for someone in modern America to work 40 hours a week and not earn enough money to afford the basic necessities (which, by the way, includes color TVs, appliances, cars, the latest designer sneakers, etc.).

We've all heard rhetoric similar to this ad nauseam. A recent Reuters article stated that the minimum wage "equat[ed] to $10,700 a year for full-time work, well below the roughly $20,000 needed to keep a family of four above the federal poverty level." The article then cited Labor Department statistics that there are now 1.9 million workers earning an hourly wage at or below $5.15, "with most of those people working in service-oriented jobs." Conflating these two statistics leads one to believe that almost 2 million people in the United States are trying to keep families financially afloat, when, in reality, the vast majority of minimum wage earners contribute second and third incomes to a household. On average, a family with a minimum-wage worker has a total income of $43,000, according to the U.S. Census Bureau.

According to the Bureau of Labor Statistics, in 2005, only about 2.5 percent of all hourly-paid workers earned $5.15 or less. More than a quarter of these workers are between the ages of 16 and 19. About 60 percent are part-time workers. Only 1.5 percent of hourly-paid workers over the age of 25 made minimum wage. A minimum wage hike, then, would not be pulling families above the poverty line, but putting a few extra dollars into the pockets of teenagers and college students working in retail or at fast-food joints. Historically, most beneficiaries of minimum wage hikes have been white and middle or upper-middle class, which brings us to . . .

Myth No. 2: Increasing the minimum wage will help poor people and minorities. In fact, scores of economic studies have shown that minimum wage increases do not help the very class they are supposedly designed to assist — poor, underprivileged, uneducated minorities. In fact, such legislation may actually harm this group.

David R. Henderson of the National Center for Policy Analysis (NCPA) noted in a brief analysis released in May that an increase in the minimum wage "entices some teenage students to drop out," leads to cuts in benefits such as health insurance, and increases poverty. He cited a 1997 National Bureau of Economic Research study, which concluded that the higher minimum wage rates passed by Congress in 1996 and 1997 increased the number of poor families by 4.5 percent.

The Mackinac Center for Public Policy points to Labor Department statistics of 20,000 jobs lost after the legislation passed, and unemployment rates increasing from 37 to 41 percent for African-American male teenagers.

Similarly, the NCPA found that the poverty rate went from 12.8 percent to 14.5 percent following wage hikes in 1990 and 1992. Even Chicago mayor Richard Daley opposed the city council's decision to boost the city's minimum wage from $6.25 to $9.25, labeling the move as one that is "basically going to hurt the minority community," as large retailers consider relocating proposed stores to the suburbs.

For one, increasing the minimum wage forces businesses to pass the higher costs along to the consumer and/or hire fewer people over time. They might not fire anyone immediately, but they might be less inclined to add more workers or replace those who leave. Raising the minimum wage also makes it harder for those with few skills to find a job. If someone has skills worth $5 per hour, an employer is unlikely to hire him for $7.

Myth No. 3: If Congress doesn't increase the minimum wage, the "working poor" will continue to work for slave wages and be oppressed by greedy corporations. To the contrary, business owners do not need a federal mandate to ensure that an employee is paid according to the worth of his work.

Service sector companies such as Marriott have found that the high turnover rates common in unskilled positions are inefficient and costly. To reduce the turnover rate, they provide competitive salaries and benefits such as health insurance, day care, and education opportunities, with the hopes of encouraging their employees to stay longer.

Wal-Mart just announced this week an increase in wages at more than 1,200 stores by about 6 percent (along with higher wage caps for each position). The average full-time hourly wage for Wal-Mart associates — at $10.11 — is almost twice the current minimum wage. Wal-Mart also provides benefits including health care, 401(k) plans, and profit-sharing.

While the recent bill fizzled in Congress, we probably have not heard the last of these misinformed cries for a government-mandated wage floor. It's time these minimum wage myths were retired permanently, as they do much more harm than good in attempting to better the quality of life for those that need it the most.


Whitney Blake is an editorial assistant at The Weekly Standard.

[magnolia33]

My concern on this issue is what it says to the 16-19 year olds trying to find a place to make their start in the work world. They want to become responsible debt free adults but the credit card companies hit them up as soon as they are 18, enticing them to spend what they don't have...the housing market for the most part is closed to this segment of workers...and minimum wage is what it it and gas, for example, is what it is. What are we saying to these young people who are the future. How are we as their collective leaders, motivating them by our actions and moral support? I have also seen, though I can't cite these articles right at this moment, much that has been written about how young people are leaving home later in life...around 25-27. This is putting so much stress on American families and part of the reason for that is wages and the job market. We have some serious issues surrounding our young people at this time. We see them involved in so much risky behavior that wouldn't finding jobs and keeping them busy and involved possibly keep them away from some of these riskier activities?

[rbird8728]

I am retired and in my 70's. As far back as I can remember, every time increasing minimum wage was brought up, there was the doom and gloom bunch that predicted that business would fail, burgers would go unflipped and tires would not be changed. Well, it's all untrue. Whatever the self-styled economic reasons, people and businesses survive if they have what it takes; that means dedication, capital, etc. People at the top of the monetary ladder never see a necessity for others to survive. It makes the plutocrats feel vunerable if the waiter or trash collector makes a buck more per hour. With all that extra income why, they might even want to move into our neighborhood.

[sharncedar]

I think we should let the market take care of things like wages. We should just allow employers and employees to decide for themselves how much they are worth. I think that a free society, full of free people, all making free choices, is like a kind of magic. With no rules, with no plans, with no structure, everything will happen magically. We don't need to think about our society, or try to improve it, or do anything really, the free market is like a tremendous kind of magic that makes everything happen so that everyone will be happy, or at least everyone who matters.

[bon1ie]

". . .slave wages . . ." that is not possible. Since when do slaves receive wages? Slaves were 'taken care of' as far as food, clothing and shelter 'and they should appreciate it instead of trying to be "free"'. So if the house slaves received 'wages', were the other slaves given 'wages'?
Tell you what, why don't you head to the nearest library, go to the area where the microfilm of your local newspapers are kept and view the papers during the last date of minimum wage change - check the grocery and dept store ad months before and then after. That will tell you the true story of minimum wage.
If I was an active gambler (life makes you an inactive gambler) I would bet that the prices of all goods increased in proportion to the increase in the minimum wage.

[kronocide]

This article is funny. On the one hand, an increase in minimum wage hurts the poor because it makes companies relocate and hire less people. On the other hand, it doesn't help the poor because companies aren't really paying minimum wages anyway. Incremental, mutually exclusive arguments is a sure sign of desperation. Then there is the suggestion that "if someone has skills worth $5 per hour, an employer is unlikely to hire him for $7." Newsflash, if someone has skills worth $5 per hour, an employer is unlikely to hire him for $5. Then there would be no profit at all. Skills don't have a fixed economic worth, it's a matter of supply and demand, just as with everything else in our market economy.

[kronocide]

Random_radar, you're right in that it's not a zero-sum game. But it doesn't have to be one for my argument to hold. All it takes is that there are more workers than places of employment. Competition guarantees that the bottom layer (skill-wise) of the workforce will be payed minimum wage _regardless_ of what skills they possess. (That they benefit from technological and scientific progress and live longer than the Pharaohs has nothing whatever to do with it.) If salary/wealth was related to skill in the way you suggest, I would be more wealthy than the English noblemen of the middle ages, because I'm literate (and know some other stuff). But I'm not. To put it succinctly, skill only has relative worth on the marketplace, but minimum wage is an absolute number. That's why an increase in minimum wage improves salaries (and hence living conditions) for the bottom layer of the workforce, something libertarian encouragements of "try harder" can't do.

[mtsprink]

The whole premise of his argument is so off base and ridiculously stupid, it does not warrant a response beyond this.

[random_radar]

Kronocide, if everyone improved their skills and became twice as productive, then they would be worth twice as much. More productive employees command higher wages and obtain greater wealth. It is not a zero-sum game. The poor of today have a longer life expectancy and enjoy greater comforts and standard of living than the Pharoahs.

Any employer who refuses to pay for a good employee will lose that person to an employer willing to pay more. Competition among those greedy employers guarantees that over time, the wages of the best employees rise to their true market value.

On the other hand, employees who are less valuable (whether due to ineptitude, lack of motivation, dishonesty, or lack of talent) tend to decline to the bottom of the economy. In the end, they become a prey to the shrewd employers who can figure out a way to make use of them.

Of course, anyone who feels strongly about an issue can use their purchasing power to reward or punish businesses. This has been done successfully with boycotts on issues of racism, pornography, and environmentalism. Everyone is free to patronize businesses that pay higher wages. I choose to pay more to shop at a union grocery store instead of Walmart because my neighbor works there and I like the ambience.

[random_radar]

SanRia I think you are wrong. Do you have any facts to back up your claims? Care to cite some studies or verifiable statistics that we can look at for ourselves? No? You are still entitled to say anything you want, but I won't take it seriously.

Whitney Blake, on the other hand, quotes from surveys and studies that you can read for yourself. The purpose of the article was to introduce you to information that contradicts the popular myths. I still may not agree with her interpretation, but I put a lot more credence in her position when it it backed by facts.

I prefer knowing the truth even if I don't like it. It just seems foolish to believe in fantasies. I don't want to be an emperor wearing no clothes.

[sanria]

Apparently Whitney Blake has had no experince in the world of the minimum wage earner. The statement "the vast majority of minimum wage earners contribute second and third incomes to a household." shows this quite clearly. In most cases the minimum wage earner has more than minimum wage job. One may be full time, but most are part-time jobs. It is not unusual that both parents in low income familes have two, three jobs to provide for their children. Next time Whitney Blake needs to get a clue before he writes to expose his stupidity.