August 14, 2006
What is a fair day's wage? How can government help people get ahead?
The Senate grappled with these questions earlier this month as it considered a bill that would have raised the federal minimum wage for the first time in nine years. In the end, senators voted not to end debate and take a vote.
However, if Sen. Harry Reid, Nevada Democrat, and others have their way, there will be another push to boost the minimum when Congress returns from August recess. But should they?
Mr. Reid and others answer with an emphatic "yes." At the current minimum of $5.15 per hour, someone working full-time earns barely $10,000 annually. That's nowhere near enough, in the eyes of many well-intended politicians. They argue that low-income Americans need a raise and that the way to do it is by congressional dictate. The House already has voted to raise the minimum wage to $7.25 per hour.
This prescription has the virtue of simplicity. But it betrays a fundamental lack of understanding of both who earns the minimum wage and the role minimum-wage jobs play in getting workers started on a career ladder.
To succeed in helping people, one must understand who they are. Advocates of a higher minimum wage assume that minimum-wage earners are poor. In most cases, this simply isn't true.
Contrary to congressional rhetoric, the typical minimum-wage earner is a suburban teenager or a college student working part time, not the sole breadwinner for a family. Most minimum-wage workers live in middle-class households that boast annual combined incomes in excess of $40,000. Most are under age 25, and three-fifths are part-timers.
These demographic realities make minimum-wage hikes an
ineffective tool for fighting poverty. Most benefits flow to
middle- and upper-middle-class households, simply because that's
where most minimum-wage earners live. Additionally, because most of
the jobs are part-time, the increased rate is not enough to lift
those who are among the working poor out of poverty.
Raising the minimum wage is also unnecessary if Congress wants to give low-wage workers a boost. Workers start at the minimum wage, but they do not stay there.
Minimum wage jobs are entry-level positions. They are designed to be filled by low-skilled workers. These workers earn lower wages because their lower skills make them less productive. But minimum-wage jobs provide much more than wages. They also give low-skill workers the opportunity to acquire the experience and skills that will make them more productive and, hence, more valuable as employees. Skills like how to interact with customers and co-workers, or the improvements that come from actual experience on the job can only be learned by actually doing them.
As entry-level workers acquire these skills and experiences, they earn raises for themselves. Two of every three minimum-wage workers earn at least one raise within a year -- and the raises keep coming after that. They don't need the government to step in and force the issue. The minimum-wage job itself is, for most Americans, the first step on a long and successful career path. These jobs equip workers with the skills they need to attain upward mobility and higher-paying positions -- without government intervention.
Raising the minimum wage reduces the availability of these starting positions. Why would a business pay an unskilled worker $7.25 an hour if it can hire a more skilled worker for the same amount? If it must pay the same wages, the company will always try to hire the more productive employees.
Raising the minimum wage artificially raises the first rung on the career ladder. Rather than give poor, unskilled workers "a leg up" out of poverty, it moves the first rung beyond the reach of many.
Raising the minimum wage creates winners and losers. Some workers, including large numbers of middle and upper-middle class teenagers, will see a nice bump in their paychecks. But many unskilled workers -- those who see their hours cut back or do not get jobs in the first place -- will have little to cheer about.
Those truly interested in helping the working poor have far more effective tools at their disposal -- earned income tax credits, for example. For far too many, a minimum-wage hike will only saw off the bottom rung of the career ladder that leads to upward mobility and, ultimately, prosperity.
James Sherk is a policy analyst in the Center for Data Analysis at The Heritage Foundation.
First appeared in the The Washington Times