Minimum Wage Hike = Bad Policy

Often lost in this debate is that the minimum wage is a starting wage for most people. For others, it supplements family income (the average family income of employees who will benefit from a hike to $7.25 is over $45,000 a year). Many of us have had a minimum wage job at some point in their careers. And, contrary to the bleak picture painted by supporters, around 2/3rds of minimum wage employees get a raise within the first 12 months of employment. Unfortunately, mandating an increase in entry-level wages simply means there will be fewer job opportunities for many Americans.

And this loss in opportunity isn’t felt equally. Recent research from Dr. David Neumark, economics professor at the University of California, Irvine, and research associate of the National Bureau of Economic Research, found that certain populations are more susceptible to job loss following a wage hike. Using Dr. Neumark’s results, we can estimate that a increase in the federal minimum wage to $7.25—like that one passed by the House—could increase unemployment for teens and young adults as much as:

15.6% among minorities
19.6% among Hispanics
26.4% among minority teens
33.6% among African American teens, and
32% for those lacking a high school diploma

The unemployment rates for these populations are already far higher than the national average. A federal minimum wage increase—and the attendant contraction in entry-level jobs—will only exacerbate this problem.

Even ignoring the job loss, a minimum wage increase has another fundamental flaw: it fails to target the people it is intended to help. In few policies is there such a wide gulf between who we think will benefit and who actually does benefit. This misconception is founded on a political myth: most minimum wage workers are struggling to raise a family.

This picture, while politically compelling, doesn’t stand up to the facts. As Census Department data reveals, only 15% of those earning between $5.15 and $7.25 are the sole breadwinner in a family with children. The vast majority of these workers are teens living at home, single adults or a dual-earner in a married couple.

Research from economists at Cornell University and the University of Georgia found that only 12% of the benefits of the increase to $7.25 would go to poor families, even if there is no job loss. Astonishingly, around 40% of the benefits go to families earning over $60,000 a year.

Looking at specific populations, the results are even worse: only 3.7% of the benefits go to poor African-American families, only 3.8% of the benefits go to poor single mothers.

Of course, there is a better way to assist these populations, without jeopardizing their jobs: an expansion of the Earned Income Tax Credit. But then, it’s not a great political sound bite.

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