Needed, Not a Minimum Wage Increase
|Fifty years ago President Lyndon Johnson launched his “War on Poverty” in his State of the Union address. Since then the US has experimented with a broad range of government spending programs. Yet today the percentage Americans below the poverty line, 15%, remains where it was in the sixties.
To be sure, the composition of the poor has changed. The percentage of African-Americans, married couples and elderly in poverty has declined sharply since 1964. We made our greatest progress in reducing poverty during periods of prosperity, only to see the poverty rate increase again during harder times. A stronger correlation exists between reductions in poverty rates during periods of low unemployment than with either increases in government spending or minimum wage increases.
Simply put, having more jobs reduces the poverty rate.
In this context, the conversation both in Maryland and nationally over the optimum minimum wage rate needs to consider the high unemployment rate among those under 25 years old. Too few “entry level” jobs are giving new workers their first wrung up in the economic ladder.
One recently released study estimates that at least 360,000 jobs – and as many as 1,084,000 jobs – would be eliminated if the federal minimum wage were raised to $10.10. After the federal minimum wage increased by 40% between July 2007 and July 2009, one study found there were 550,000 fewer part-time jobs as a result.
Reality contradicts the vivid rhetorical picture painted about who actually earns the minimum wage. According to the Bureau of Labor Statistics, 1.8 million paid-hourly employees were paid the federal minimum wage of $7.25 in 2010. This represents slightly more than 1% of the total workforce.
The popular myth that minimum wage workers are primarily working full time to raise a family is simply untrue. According to Census data, only 16.5% of minimum wage recipients are raising a family on the minimum wage
Nearly 60% of those who would be affected by an increase either live with family or relatives, or are second-earners in a married couple. Roughly half (49%) are teenagers or young adults aged 24 or under. Just 16% of those who were covered by the last federal minimum wage increase (between 2007 and 2009) lived in poor households. Forty percent had a household income three times or more above the poverty line. In fact, the average total family income for Marylanders with a minimum wage earner is $73,995.
Unpaid internships provide many their start in careers in government, politics media, and non-profits. These can be very good opportunities for those who can afford to take them. Yet often only middle class kids with family financial support can afford to take advantage of them.
Ironically many of the same legislative offices, newspapers and news channels most actively promoting a higher minimum wage also rely extensively on unpaid interns as a source of free labor and as their hiring pool for entry level full-time jobs.
Contrast this with the approximately 100,000 Marylanders youth between the ages of 16-24 years old have dropped out of school and are jobless. They need more, not fewer entry-levels paying jobs. Our minimum wage debate must not forget their need for paying starter jobs from private employers.
Little imagination is necessary to see how a higher minimum wage, along with the looming Obamacare employer healthcare requirements, will lead to a reduced workforce. We should expect more self-service check-outs, electronic tablet menus for ordering and globally outsourced call centers. Local based retailers, such as pharmacies and clothing stores, will be less competitive with their on-line and mail order based competitors.
No amount of rhetoric by the President or O’Malley can change the fact that minimum wage hikes eliminate jobs for low-skill and entry-level employees. Instead of raising small businesses’ labor costs and creating more barriers to entry-level employment, the President and the Governor should focus on policies that create jobs.
Raising the minimum wages is certainly a feel-good and even well-meaning attempt to help workers. Yet the economic data compellingly demonstrates increases come with economic costs, and the least skilled and least fortunate among us pay the heaviest cost from reduced opportunities.
Uncapher was Montgomery County Republican Chairman from 2008-2013, and is now the MCGOP Treasurer. Follow on twitter @Mark_Uncapher