The Minimum Wage Doesn’t Merit a Raise : Teens and middle-class part-timers will benefit; the poor will pay higher prices.
The Clinton Administration has rung in the new year with an old idea: raising the minimum wage. In an attempt to raise low-wage workers’ incomes through social engineering, the Administration has indicated that it will push to increase the minimum wage from $4.25 an hour.
The proposal is sure to spark sharp debate about whether the minimum wage destroys jobs. This aspect of the discussion will overshadow an even more fundamental question: Does minimum-wage legislation accomplish its objective? Does it really help poor people?
Half a century ago, the answer to that question probably would have been yes. In the 1940s, most minimum-wage workers lived in poverty. The minimum wage was thus a well-targeted and effective anti-poverty device. Over the past several decades, however, the minimum-wage population has evolved. According to economists Michael Horrigan and Ron Mincy, the income distribution of minimum-wage workers is almost identical to the income distribution of the population as a whole.
Today only one in seven minimum-wage workers lives in a poor household; most of the rest are middle-class teen-agers or wives in pursuit of a little extra income. Thus the benefit from a minimum-wage hike would go mostly to middle- and upper-income families.
The Clinton Administration has perpetuated the myth that there is an army of working poor people in this country. A 1987 Congressional Budget Office study suggests otherwise. That report showed that in the entire United States, only 120,000 minimum-wage employees work full-time year-round yet also are poor. That’s less than 3% of the minimum-wage population and only about 1/10th of 1% of the total labor force.
Even that small figure overstates the extent of the phenomenon. Many minimum-wage earners live in households that receive non-cash government assistance such as Medicaid and food stamps, which is not counted as income in official poverty statistics. Moreover, the minimum wage has been raised twice since the CBO study. So has the earned-income tax credit for working families with low income.
Even ignoring its disemployment effects, minimum-wage legislation is costly policy. When the minimum wage is increased, employers in labor-intensive industries like retail pass along part of their increased labor costs to consumers in the form of higher prices. While minimum-wage workers get a raise, America’s consumers--rich and poor, working and nonworking--pick up the tab. People with low incomes would be particularly hard hit by higher food and clothing prices since they spend a larger proportion of their budget on those items than do rich people.
This wouldn’t be so bad if poor minimum-wage workers outnumbered poor people who do not work at the minimum wage. In fact, the opposite is true. Of the 23.5 million poor adults in America, only about 1 million work at the minimum wage (15 million don’t work at all). Those 1 million minimum-wage workers probably would be made better-off by a minimum-wage increase (assuming they don’t lose their jobs), but the 22.5 million poor people who are not minimum-wage workers would definitely be made worse-off.
Not ones to let a few inconvenient facts get in the way of political posturing, President Clinton and his Old Democrat allies will forge ahead with their plan. America’s poor should hope they don’t get their way.