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Saturday, July 18, 2009

The Minimum Wage in Small Words

If you didn't already know, the minimum wage is scheduled to go up before the end of this month. That being the case, I thought it not inappropriate to resurrect this old post from a previous blogging incarnation. I have edited it a little bit to take unnecessary snark out of it, though I have no doubt there will be some who still find certain elements of it offensive. Also, I have not checked the links to see if they still work. If they have gone dead over time, I apologize, but I really haven't the time to hunt the material down again. And of course, some of the information in the links, like family income figures, may be out of date. It matters not. The material is still illustrative.
It drives me 'round the bend when I hear--from people who honestly ought to know better, in fact, I am convinced, do know better, which makes it all the worse--that they want to raise the minimum wage to help the poor. To help those people struggling so hard to raise families on the minimum wage. My reaction is very basic, almost visceral: bullski. Raising the minimum wage does not help the poor. It is only a way of rewarding the political loyalty of the unions.

Many times, it seems to me that people who pontificate about how we must raise the minimum wage have scarcely bothered to look into the actual facts of the matter. I don't think they care to. It is so much easier to sound enlightened and charitable when you can make up your mind absent the facts! It is so much easier to convince yourself that you want to help the poor when you don't examine the results of what you propose. As Rush has said so often, there are too many people who want their policies to be judged on the good intentions behind them rather than on their results. Such is the case when it comes to the minimum wage. Let me explain:

1) First, it is an utter canard that any significant quantity of people are trying to raise families on the minimum wage. I'd suggest that this should be obvious to anyone who's actually worked with minimum-wage workers for any length of time (I spent about fourteen years hiring and working with them), as you can see with your own two eyeballs, over and over again, that the overwhelming majority of your co-workers are young, usually in school, or working that job to supplement other household income. In other words, it is very misleading--a totally false picture, really--to suggest that very many families are dependent on the wages of a minimum-wage worker. It is a myth, something created by poverty-pimps to advance their political agenda.

I'll condense some material that explains this in more detail. You can find the full article, together with the attendant notes and tables, here. Any emphasis is mine.
Data from the Department of Labor show that most minimum wage-earners are young, part-time workers and that relatively few live below the poverty line. A minimum wage hike, then, is more a raise for suburban teenagers than for the working poor.

...Using another measure of earnings that includes tips, 1.3 million Americans earn the minimum wage or less per hour, or 1.1 percent of the total working population.

...Most workers who earn the minimum wage or less fall into two categories: young workers, usually in school, and older workers who have left school. The majority of minimum wage-earners fall into the first category:

53 percent of those earning $5.15 or less per hour are between the ages of 16 and 24...Minimum wage workers under 25 are typically not their family’s sole breadwinner. Rather, they live in middle-class households that do not rely on their earnings. For the most part, they have not finished their schooling and are working part-time jobs. These workers represent the largest group that would directly benefit from a higher minimum wage.

Here are a few important characteristics of the teenagers and young adults who earn the minimum wage or less:

* Fully 67 percent work part-time jobs.
* Their average family income is $64,000 per year.
* Only 17 percent live at or below the poverty line, while 65 percent enjoy family incomes over twice the poverty line.

* They have less education than the population as a whole. Fully 36 percent have not completed high school, and 21 percent have only a high school degree. Another 37 percent have taken college courses but do not yet have a bachelor’s degree; many of these are college students working part-time while in school...

Even the vast majority of older adults who earn the minimum wage live above the poverty line. They have an average family income of $33,600 a year, well above the poverty line of $19,806 per year for a family of four....

Here are a few important characteristics of the 47 percent of minimum wage-earners who are over the age of 24:

* More than half—56 percent—work part-time jobs.
* They have an average family income of $33,606 per year.
* Just 23 percent live in poverty, while 45 percent have incomes over twice the poverty line.

Many advocates of higher minimum wages argue that the minimum wage needs to rise to help low-income single parents. However, minimum wage workers do not fit this stereotype more than the population as a whole. Just 6.1 percent of minimum wage workers over the age of 24 are single parents working full-time, compared to 6.3 percent of all hourly workers...while some minimum wage-earners do live below the poverty line, these workers are far from representative. Only one in five minimum wage-earners lives in a family that earns less than the poverty line. Three-fifths work part-time, and a majority are under 25 years old.

Minimum wage-earners’ average family income is almost $50,000 per year. Very few are single parents working full-time to support their families—no more than in the population as a whole. It is not surprising, then, that studies show that higher minimum wages do not reduce poverty rates.
In other, simpler words, then: raising the minimum wage is not something being advanced to help people out of poverty.

Those advancing this idea know the facts full well. They are simply demagoguing the issue for the sake of political power, or, sometimes, as I have mentioned from time to time, trying to punish the rich. Sad to say, there are people who are more interested in misguided vengeance than they are in protecting genuine unalienable rights or in actual results.

2) One does not wrench with the Law of Supply and Demand lightly. Good grief, I cannot believe that I'm actually having to explain this. I wouldn't have thought that one could escape even a government school without understanding this. And God knows, if it's a private school that was responsible, a refund is certainly in order. But I digress. To reiterate: one does not wrench with the Law of Supply and Demand lightly. Doing so tends to result either in shortages or in unemployment--sometimes both. In the case of the minimum wage, what actually happens is that the less capable, the marginally employable, those who have the hardest time finding work, tend either not to find work or to be thrown out of work when the minimum wage goes up. This, obviously, is devastating to those people, making it harder than ever for them to climb out of poverty. In the following material, emphasis is again mine.
...raising the minimum wage is not necessary for the official working poor to increase their income. Between 1998 and 2002 median wage growth for minimum wage employees was more than five times that for those earning above the minimum wage. Nearly two-thirds of all minimum wage employees who continue employment are earning more than the minimum wage within a year. More than 97% of all employees in the United States move beyond the minimum wage by age 30. Those who do not progress to a wage above the minimum either lack the skills or motivations for them to be attractive hires at a higher rate of pay. The key to increasing one's income is not raising the minimum wage, but remaining employed. This is one reason why the minimum wage can actually be devastating to the working poor. The minimum wage tends to hurt the lowest skilled workers by making them less employable...An increase in the minimum wage will not benefit all low income workers. It will help only some of them at the expense of others. Why is this so? Well, economic law tells us that if the price of any good increases, people will want to buy less. This is true for gasoline. It is true for apples. It is true for iPods. It is also true for labor services.

Even the "living wage" zealots at ACORN recognize this. In 1995 ACORN sued the state of California to get itself declared exempt from California labor law, so it would not have to pay the minimum wage to its own employees. In its brief submitted to the Court of Appeal, ACORN argued, "The more that ACORN must pay each individual outreach worker—either because of minimum wage or overtime requirements—the fewer outreach workers it will be able to hire."..Employers cannot simply pay any old wage that makes workers happy. Businesses are constrained by the value that the workers add to the firm. If a worker's contribution to the firm is such that his output brings in revenue of $5 for every hour of his output, the business cannot afford to pay him any more than that and still break even. If he is forced to pay this employee $7 an hour, he is losing $2 an hour every hour that worker is employed. A minimum wage increase provides an incentive to hand him the pink slip.

That worker will soon be on his way out the door, most likely cursing his employer instead of the government mandated minimum wage. The direct result of a minimum wage above the market wage is mass unemployment for relatively less skilled workers. The number of workers who want to work increases, but the quantity of laborers that employers can afford to hire falls. The result is more people wanting to work at the minimum wage than can get hired. In other words, we get unemployment.
Again, I've seen this with mine own li'l peepers, my very own eyeballs. In the restaurant business, the manager is given a budget, numbers he is expected to hit. He has only X percent of his restaurant's income that he can spend on labor and still turn a profit. When the minimum wage goes up, two things tend to happen: there is an across-the-board price increase, and the manager becomes much more selective about whom he will employ. His labor budget does not go up appreciably (if at all). He has X number of dollars to spend, now divided by--for example--7 dollars an hour instead of 5. What will happen? Is it not obvious? Anyone who's worked in these businesses and paid attention knows what will happen. Fewer people will be employed, and those will be the absolute best the manager can find. The marginally employable are suddenly out the door! So much for "helping" the poor!

Data on this subject is not hard to come by. There is much more available than I have provided here. To sum up: there are actually very few people trying to support families on the minimum wage. For those people, the whole key to increasing their incomes is to stay employed. Raising the minimum wage makes it harder for those people to stay employed. Therefore, simply stated, raising the minimum wage is inimical to their interests. Again, those who pushed for an increase in the minimum wage in the House and Senate know this. Well, I suppose that they might not know this, but that's hardly flattering to them. Again, they were simply demagoguing the issue, playing your heartstrings like a fiddle in order to stay in office. They do not give a rat's patoot about the poor.

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