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Raising the Minimum Wage Hurts Low-Income Workers

Posted By David Weinberger On April 25, 2012 @ 11:41 am In Economics | Comments Disabled

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Should we raise the minimum wage? The editors at Bloomberg think so [2]. They maintain that low-wage jobs are expanding and that a minimum wage hike would boost the economy. Despite these notions, hiking the minimum wage remains a bad idea.

Bloomberg first laments that low-wage jobs are becoming the norm: “It’s also becoming clear that many Americans are being forced to take lower-paying jobs and that a low-wage bias is creeping into the economy.”

However, the percentage of minimum wage jobs has declined. According to the Bureau of Labor Statistics [3], just 5.2 percent of all hourly paid workers in the U.S. make the minimum wage, which is a smaller percentage than in 1979:

The proportion of hourly-paid workers earning the prevailing Federal minimum wage or less declined from 6.0 percent in 2010 to 5.2 percent in 2011. This remains well below the figure of 13.4 percent in 1979.

Even fewer adults work in minimum-wage jobs full time. Most minimum-wage workers are 25 or younger, and 69 percent work part time. The typical minimum-wage employee is a high school or college student with a part-time job, a major reason so many have attended—but not completed—college.

The primary value of these jobs is not the low wages they pay today. It is the on-the-job training they provide. Minimum-wage jobs teach inexperienced workers basic employability skills such as taking directions from a boss and working with co-workers. Acquiring these skills makes minimum-wage workers more productive and enables them to earn raises. Two-thirds of minimum-wage workers earn raises within a year. [4]

The problem with minimum-wage increases is that they reduce access to these entry-level jobs. It is a basic tenet of economics that when the price of something rises, people buy less of it. This is as true of businesses hiring unskilled workers as it is of Americans buying household goods. Heritage economist James Sherk finds [4] that “two-thirds of all recent studies show that raising the minimum wage reduces jobs.”

This is common sense. If someone’s labor raises earnings by $8 an hour, no employer will hire him for more than that. The business would lose money—and would soon be out of business. Raising the minimum wage to $9.80 an hour, as Senator Tom Harkin (D–IA) suggests [2], would price many unskilled workers out of the labor market.

Is it really compassionate to tell inexperienced workers that they cannot work if they cannot produce $9.80 per hour of value? Is it compassionate to deny them the opportunity to gain skills and experience, become more productive, and earn raises?

Upon first thought, raising the minimum wage sounds compassionate. Thinking a second time shows that it would hurt the very workers its supporters want to help.


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URL to article: http://blog.heritage.org/2012/04/25/raising-the-minimum-wage-hurts-low-income-workers/

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[1] Image: http://blog.heritage.org/wp-content/uploads/in-and-out-burger.jpg

[2] Bloomberg think so: http://www.bloomberg.com/news/2012-04-16/u-s-minimum-wage-lower-than-in-lbj-era-needs-a-raise.html

[3] According to the Bureau of Labor Statistics: http://www.bls.gov/cps/minwage2011.htm

[4] Two-thirds of minimum-wage workers earn raises within a year.: http://www.heritage.org/research/reports/2006/07/minimum-wage-workers-incomes-rise-when-the-minimum-wage-does-not

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