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The Minimum Wage Increase Myth



The Minimum Wage

Yesterday (February 2, 2012) Rush Limbaugh announced that Republican presidential nomination hopeful Mitt Romney favored a minimum wage increase linked to inflation. Romney renewed his support for automatic increases in the federal minimum wage to keep pace with inflation. “I haven’t changed my thoughts on that,” said Romney about automatic minimum wage increases, a belief he has held for a decade. Limbaugh then demonstrated the fallacious thinking behind raising the minimum wage by suggesting that it be raised to $20/hour. “How much of a raise is enough?” was the theme of his discussion. The current minimum wage is $7.25 per hour, and has been since July, 2009.

Economic Effects

This source, by Paul Kersey, is somewhat dated, but the percentages he offers (according to my research) have not changed. He contends that the working poor (minimum wage recipients) do not necessarily need government help because the “dead-end job” (one that pays minimum wage forever and/or a job in which someone is stuck forever) is largely a myth. So increasing the minimum wage will do little to improve conditions for the working poor because relatively few of the recipients of such an increase are living in poverty. An increase in the minimum wage will likely make low-wage jobs more scarce.

The typical beneficiary of a minimum wage increase will not be a poor father or mother trying to keep a family fed, clothed, and housed, but is likely to be members of the middle class. Fifteen percent of minimum wage only are currently living in poverty. Nearly three-quarters of these workers, 72 percent, have a family income that is at least 50 percent higher than the poverty line, and over half belong to families earning double the poverty level. One fifth of low-income workers belong to families earning over $80,000 annually. The average family income of the typical low-wage worker is $40,000 per year. Remember, these are 2004 dollar amounts.

The value of a minimum wage increase for poor families is limited by the low amount of hours that parents in poor families actually tend to work. So increasing working hours would have a far greater benefit for these families, both immediately and in the long term, than increasing the minimum wage. Finding full-time work provides the poor with the means to escape poverty. Minimum-wage work can serve as a path to a better job. Unskilled workers may gain new skills, or gain a record of reliability, that allows them to move on to better-paying positions. Low-wage earners frequently see their wages rise quickly. Raising the minimum wage will destroy the path to prosperity for many poor families, and will delay the entry of other workers, including youth, into paid work by needlessly increasing the cost of unskilled labor. Employers will not be able to afford to hire as many unskilled workers, and will respond by cutting back services or replacing workers with machinery.

Poverty Is Relative

We should remember that our notion of poverty is relative. The average minimum wage earner has a car, air conditioning, at least one color television along with cable or satellite TV, a home that is in decent condition and enough food in the refrigerator. For those who do not work, the worry that comes from knowing that one is dependent on the determinations of state and federal bureaucrats, and the loss of self esteem that comes from knowing that one is not self-sufficient, is enhanced by the lack of a job, regardless of wage or pay.

But that’s just my opinion.

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