Tuesday, December 19, 2006

The Right Minimum Wage: $0.00

When the media give us a portrait of a typical minimum-wage worker, they are almost always wrong. They usually portray a mother or a father with at least two children, who are unable to make ends meet on the $10,300 provided by the minimum wage. In fact, the great majority of "minimum wagers" are much different, say the American Enterprise Institute (AEI).

The number of people on the federal minimum wage of $5.15 per hour is many fewer than most people imagine:
  • In 2005, there were only 1.9 million workers earning the minimum wage (out of 145.6m workers in the U.S., or only 1.3% of the labor force).
  • 63% work only part-time and are not full-time workers, and a majority (53%) are under the age of 25 -- most of them students or weekend workers.
  • Within this disproportionately large pool of youth "minimum wagers," 2/3 come from families with at least one other family member earning income.
  • 80% of minimum wagers belong to families above the poverty line.
  • Average income of the family of a young individual earning minimum wage is just over $64,000.
Who are the losers from a higher minimum wage, and who will actually gain?
  • Less than 13% of the benefits from a federal minimum-wage increase would go to poor families, while 63% would go to families earning more than twice the poverty line, and 42% to those 3X above the poverty line.
  • A hike in the minimum wage will hurt low-skilled workers most because those jobs will be increasingly difficult to find.

As Milton Friedman said, "Minimum wage laws are defended as a way to help low-income people," when "in fact, they hurt low-income people... The minimum wage law requires employers to discriminate against persons with low skills."

The real problem with unskilled workers is not that they are underpaid, but they are "underskilled." And how best to develop skills? Get and keep a job, which is hard to do when an unskilled worker has been priced out of the labor market by an increase in the minimum wage. That is why the NY Times wrote an editoral once titled: "The Right Minimum Wage: $0.00 per Hour."


At 12/19/2006 11:52 AM, Blogger Tom Bailey said...

I see things exactly this way as well. I rarely have seen the min. wage issue articulated this way. I like the stats that you have behind this. Excellent article. The best I have ever read on this subject. This is my first visit to your blog and I really like what you are doing here.


At 12/19/2006 12:08 PM, Blogger youdontknowme said...

I do believe that there should be a minimum wage but it should be relevant to cost of living so it should differ in each city.

At 12/19/2006 4:16 PM, Anonymous Anonymous said...

There already is a zero minimum wage: It's called self service. These are formerly low wage jobs that are now your no wage job.


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