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InsiderOnline Blog: January 2007

Minimum Wage: What's In It for Low-Income Workers?

George Will has a good rundown of the facts about minimum wage workers. In brief, few earn the minimum wage, and most of those who do are not poor:

Most of the working poor earn more than the minimum wage, and most of the 0.6 percent (479,000 in 2005) of America’s wage workers earning the minimum wage are not poor. Only one in five workers earning the federal minimum lives in families with earnings below the poverty line. Sixty percent work part time, and their average household income is well over $40,000. (The average and median household incomes are $63,344 and $46,326, respectively.)

Forty percent of American workers are salaried. Of the 75.6 million paid by the hour, 1.9 million earn the federal minimum or less, and of these, more than half are under 25 and more than a quarter are between ages 16 and 19. Many are students or other part-time workers. Sixty percent of those earning the federal minimum or less work in restaurants and bars and earn tips—often untaxed, perhaps—in addition to wages. Two-thirds of those earning the federal minimum today will, a year from now, have been promoted and be earning 10 percent more. Raising the minimum wage predictably makes work more attractive relative to school for some teenagers and raises the dropout rate. Two scholars report that in states that allow people to leave school before 18, a 10 percent increase in the state minimum wage caused teenage school enrollment to drop 2 percent.

Will concludes:

But the minimum wage should be the same everywhere: $0. Labor is a commodity; governments make messes when they decree commodities’ prices. Washington, which has its hands full delivering the mail and defending the shores, should let the market do well what Washington does poorly.

What is the mess that Washington will make by fiddling with this commodity price? As James Sherk of The Heritage Foundation explains, employers respond to higher minimum wages by hiring different kinds of workers—i.e., those whose labor is actually worth the higher wage. Those higher-skilled workers turn out not to be the poorer workers—i.e., those whom the law intended to help. Commenting on one study on the impact of minimum wages on restaurant employment, Sherk concludes:

A higher minimum wage is great news for a high school student working part time to buy an iPod. But it hurts the lower-skill adult workers who need the job to support themselves and their families.

Posted on 01/04/07 04:44 PM by Alex Adrianson

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