Minimum Wage, Still Crazy After All These Years

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Democrats assure us that, if they win the House or Senate in November, they will pass a bill to increase the hourly minimum wage from its $5.15 rate. Never mind that when they held the Senate in 2001-2002 they did not even bring a minimum wage bill to the floor. Now they complain that the rate hasn’t been raised for a decade.

Democrats have help from America’s union movement, AFL-CIO, which is spending union members’ hard-earned dues on an “America Needs a Raise” campaign. Next week the AFL-CIO is featuring Roseanne Barr in a video called “Seven Days At Minimum Wage” to campaign for minimum wage initiatives on the ballot in Arizona, Colorado, Missouri, Montana, Nevada, and Ohio.

And Democrats are even getting help from economists who should know better. Last week the Economic Policy Institute, an AFL-CIO-funded research organization, issued a letter signed by 650 economists calling for raising the minimum wage to $7.25 per hour. Featured signatories are economists who held plum political positions in the Clinton and Carter administrations, such as former Council of Economic Advisors chairman and Nobel prizewinner Joseph Stiglitz, former Federal Reserve vice chair Alan Blinder, and former OMB director Alice Rivlin.

The current minimum wage doesn’t directly affect many people, which is why the 650 economists say that raising the minimum wage won’t affect employment. Fewer than 2 million of our 152 million labor force, or 1.2%, earn the minimum wage — all the other workers earn more.

Twenty-two states, primarily on the East and West coasts, including New York, have passed minimum wage laws over and above the federal level. On January 1, 2005, New York’s minimum wage rose to $6.00, followed by an increase to $6.75 in January 2006. The rate is scheduled to rise to $7.15 in January 2007. Nevertheless, in 2005 there were 95,000 workers recorded as earning $5.15 in New York State.

Raising the hourly minimum wage to $7.25 would affect not only workers on the current minimum wage, but also the 11 million workers who earn between $5.15 and $7.25 an hour. Altogether, the proposal would directly affect over 12 million workers, or 8% of the labor force.

Workers on minimum wage are rarely the sole source of support for their families, and the families are not necessarily in poverty. Minimum wage workers tend to be young — half are under 25,and a quarter are ages 16 to 19. Over half work part-time, and 64% have never been married. Seventy percent of minimum wage workers live in the north central and southern regions of the country, which are primarily rural areas with the lowest cost of living, and only 12% are in the middle Atlantic states. Sixty percent work in the restaurant industry.

Why the Democrat focus on the minimum wage? As well as having the appearance of compassion, it plays well as a “get out the vote” strategy, even with the current strong economy. It can be used to attack high levels of CEO compensation, Republican tax cuts, and perceived increased income inequality.

Bertha Lewis, executive director of the New York branch of the Association for Community Organizations for Reform Now, which is partnering with the AFL-CIO to raise the minimum wage, said earlier this week that it’s unfair that in our society people earn only $5.15 an hour.

She assumes that if the minimum wage were raised, all 12 million workers would retain their jobs. But an increase to $7.25 an hour, plus the mandatory employer’s share of social security, unemployment insurance, and workers’ compensation brings the hourly employer cost close to $8, even without any benefits. Those who produce under $8.00 per hour just wouldn’t be employed.

It sounds compassionate to alleviate poverty by mandating that others — in this case, employers — give away their money. But employers won’t necessarily cooperate. Instead, they’ll only hire those workers who can produce $8.00 per hour, fewer workers than they hire today. Employers can change technologies or hire more skilled workers to keep their firms in business.

Denying work opportunities to those whose skills don’t add up to $8.00 per hour is not compassionate, it’s manifestly unfair. The federal government would be essentially mandating that workers below a given level of skill have no right to work.

These low-skill workers include many who need to get their foot on the bottom rung of the career ladder, such as teenagers getting their first jobs and people with poor job histories.Today’s minimum-wage teenage waiters are gaining the job skills to become tomorrow’s professionals. Almost all of us remember minimum wage jobs we had in our youth. And data show that the majority of minimum wage workers move on to better jobs within a year.

European economies keep the low-skilled unemployed, not with minimum wages, but with generous benefit packages (also proposed by Democrats) for the unemployed that discourage work.The predictable effect is high unemployment rates with a substantial percentage out of work for more than a year, leading to deteriorating skills.This is not a route for America.

With our nation’s unemployment rate at 4.6%, most American employers have to pay more than minimum wage just to attract workers. The fears whipped up by the AFL-CIO that employers are exploiting workers are irrational. Over 142 million workers are now earning above minimum wage, not because of government regulation, but because that is the only way that firms can attract employees.

Rather than increasing the minimum wage, we should focus on increasing the skills of our workforce, so that low-wage workers can make a faster transition to higher-paying jobs. Programs such as the Department of Labor’s Workforce Innovation in Regional Economic Development link employers, education, and economic development.WIRED tackles specific regional problems, such as the loss of the steel and coal industries in northeastern Pennsylvania.

Raising the minimum wage on the grounds of fairness is a crowd-pleaser. But that does not mean that it is the moral course of action. The people who will be hurt are those who are least able to look after themselves.

Ms. Furchtgott-Roth is a senior fellow at the Hudson Institute, where she directs the Center for Employment Policy. From 2003 to 2005 she was chief economist of the U.S. Department of Labor.


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