minimum wagaeFast food workers have been calling for a raise in the minimum wage, and politicians are touting it. There’s even a website devoted to it (“Rebuilding an economy that works for all of us.”) But would raising the minimum wage really help the working poor?

Economist David R. Henderson says no, it won’t. In a piece for the National Center for Policy Analysis, Henderson says there are two myths here.

Most workers earning at or close to the minimum wage are not the sole earners in a household and most of them are not in poor households. For those two reasons, raising the minimum wage is not a targeted way to help poor people.

From 2003 to 2007, 28 states raised the minimum wage to a level higher than the federal minimum wage. Using this as a basis for study, San Diego State University economics professor Joseph J. Sabia and Cornell University economics professor Richard V. Burkhauser examined the effects this had on poverty levels in those states. Their findings? There was no difference in poverty levels in those states as compared to states with lower minimum wages.

Further, they calculated the effects of a proposed increase in the federal minimum wage to $9.50 on workers then earning $5.70 (or 15 cents less than the minimum in March 2008) to $9.49. They concluded that increasing the minimum wage from $7.25 to $9.50 per hour “will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour.”

Why is this? First, only about 11 percent of the workers affected by a minimum wage increase live in a household that meets the poverty criteria. Second, more than 63 percent of those earning minimum wage were second or third income-earners in their household “with incomes equal to twice the poverty line or more,” and finally, just over 42 percent of minimum wage earners were second or third earners in homes “that have incomes equal to three times the poverty line or more.”

Sabia and Burkhauser also concluded that a national hike in minimum wage would destroy more than a million jobs, with employers needing to off-set higher wages with job cuts and reduced benefits.

If that job destruction occurs, the net benefit to households containing low-wage workers would be only $2.63 billion per month, of which only $287 million would be a gain to households in poverty. These estimates overstate the gains to households from increasing the minimum wage. Why? Because, to the extent they are able, employers will offset the higher minimum wage by reducing non-money components of worker compensation.

Raising the minimum wage to fight poverty? The economics don’t add up.

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  • http://flamingfundamentalist.blogspot.com/ Curt Day

    Why is it that if we want to reward those who are executives or professional, we increase their salaries to improve their standard of living but if we want to help alleviate poverty, we dare not touch the minimum wage?

    The above statistics don’t tell the whole story. They don’t tell the story of those who live just above the poverty line but are highly vulnerable because they are one illness or injury away from losing work time or even their jobs. And some of these people have stayed out of poverty by ignoring healthcare. These statistics don’t tell the stories of students who, in an effort to escape poverty, go to college but either cannot devote enough attention to their studies because of their work schedule or cannot afford books because of their income. I could tell you some of their stories because I taught such students before retirement.

    And what about the millions of working poor who work full-time hours and still live in poverty. Both the number and the rate of those who belong to the working poor have been increasing steadily as the income of the top earners continues to increase. We might minimize the number of working poor by showing percents but the numbers of those who suffer are in the millions.

    Whenever I see conservative studies on minimum wage and poverty, there is always one side of the story that is left out, that side comes from those who are working and either live in poverty or near the poverty line.

    Former Cal Berkley economics professor Manfred Max-Neef compared love to poverty in this way. Just as the only way to understand love is to have fallen in love, the only way to understand poverty is to become poor. Only here, we should not that the poor are not a monolith. For example, there are those who are homeless, even among those who work, and those who aren’t. So one must experience poverty in several ways to understand what it means to be poor. Perhaps economists who wish to talk about the relationship between minimum wage and poverty but have experienced comfortable living standards would personally experience poverty in its many varieties, then they could start talking about the economy in ways that are meaningful to all who live in poverty.

    Finally, maybe we should ask critical questions why increasing the minimum wage destroys jobs when the loss of jobs is never mentioned when we increase executive pay, increase dividends, and pay higher costs due to food speculation and alike. For if we asked such critical questions, we might discover the real relationship between raising the minimum wage and job loss.

  • Doug Hall

    The best way to help the poor is to improve the economy. The best way to improve the economy, in our current state, is to reduce taxes and government regulations. Once the economy improves, more jobs will come. When that happens, more employers will pay more to get and keep better employees. This sounds more “iffy”, than the one-step solution of raising the minimum wage solution, but the truth is, it’s more reliable. Simply raising the minimum wage will make employers look for ways to reduce the number of workers or their hours worked. (For every action, there is an equal and opposite reaction.) I feel for the poor. But the best way the government can help them, is to get the hell out of the way, and let a TRUE free market economy do its thing.

    I know liberals like to bash “trickle down economics” from the Reagan era. But who among you would take what we have now over the economy of the eighties?