Mythology of the minimum wage

August 31, 2006

Free Market Foundation

The recently defeated minimum wage hike proposal in the U.S. Congress has resulted in a regurgitation of economic misinformation, says Whitney Blake of the Weekly Standard.

While politicians say that millions of “working poor” are trying to feed a family of four on a single income of $5.15 an hour, the reality is quite different, says Blake:

In 2005, only about 2.5 per cent of all hourly-paid workers earned $5.15 or less.

More than a quarter of these workers are between the ages of 16 and 19.

About 60 per cent are part-time workers.

Only 1.5 per cent of hourly-paid workers over the age of 25 made minimum wage

Another myth is that increasing the minimum wage will help poor people and minorities. But scores of economic studies have shown that wage increases do not help those they are supposedly designed to help:

A 1997 National Bureau of Economic Research study found that a higher minimum wage increased the number of poor families by 4.5 per cent.

The Mackinac Center for Public Policy points to Labour Department statistics of 20,000 jobs lost after wage hikes in 1997, and unemployment rates increasing from 37 to 41 per cent for African-American male teenagers.

Similarly, the National Center for Policy Analysis found that the poverty rate went from 12.8 per cent to 14.5 per cent following wage hikes in 1990 and 1992.

Lastly, it is posited that the “working poor” will continue to be force to work for slave wages and be oppressed by greedy corporations. However:

Service sector companies have found that the high turnover rates common in unskilled positions are inefficient and costly, and try to reduce them by providing competitive salaries and benefits.

The average full-time hourly wage for Wal-Mart associates at $10.11 is almost twice the current minimum wage.

Source: Whitney Blake, Mythology of the Minimum Wage, CBSNews.com, August 17, 2006

For text: http://www.cbsnews.com/stories/2006/08/16/opinion/main1901101.shtml

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 22 August 2006