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January 4, 2007
What You Don't Know About The Federal Minimum Wage

Nancy Pelosi and the Democrats have placed a significant minimum-wage increase at the top of their agenda for the 110th Congress. President Bush has signaled his willingness to approve it, using the increase as a lever for tax relief on small businesses. One would imagine that this show of bipartisanship springs from a national crisis, but George Will explains that the effort will benefit only a few, and not even the few that the politicos assume:

Democrats consider the minimum-wage increase a signature issue. So, consider what it says about them:

Most of the working poor earn more than the minimum wage, and most of the 0.6 percent (479,000 in 2005) of America's wage workers earning the minimum wage are not poor. Only one in five workers earning the federal minimum lives in families with earnings below the poverty line. Sixty percent work part time, and their average household income is well over $40,000. (The average and median household incomes are $63,344 and $46,326, respectively.)

Forty percent of American workers are salaried. Of the 75.6 million paid by the hour, 1.9 million earn the federal minimum or less, and of these, more than half are under 25 and more than a quarter are between ages 16 and 19. Many are students or other part-time workers. Sixty percent of those earning the federal minimum or less work in restaurants and bars and earn tips -- often untaxed, perhaps -- in addition to wages. Two-thirds of those earning the federal minimum today will, a year from now, have been promoted and be earning 10 percent more. Raising the minimum wage predictably makes work more attractive relative to school for some teenagers and raises the dropout rate. Two scholars report that in states that allow people to leave school before 18, a 10 percent increase in the state minimum wage caused teenage school enrollment to drop 2 percent.

Will makes a point which many on both sides have missed, which is that the Bush administration's spending spree makes it politically difficult for them to oppose the increase. After all, Bush signed the pork-filled farm bill in 2002 that benefitted the large farmers more than anyone else, and he signed a highway bill in 2005 that notoriously contained over six thousand earmarks. If the government wants to give away money, why not to the poor?

But that's precisely the problem. They aren't giving away money, not from their checkbook, at any rate. They're distorting a market for a short-term political benefit that will do nothing to raise the standard of living for the people they supposedly want to help. Arbitrarily raising the prices of services and goods in a marketplace causes inflation, not an increase in real value. They're forcing consumers of labor to pay more for the same service, from which they will get no increased benefit -- and that means that they will have to pass the costs along to the consumers of their goods and services, all through the distribution chain.

Whose money is getting given away? Yours and mine, and all 479,000 minimum-wage workers, that's who. i can absorb the incremental loss of buying power, but the people at the bottom rungs cannot. If they're lucky, all that will happen is that their buying power will remain the same as it was after a short period of adjustment. More likely, some of their jobs will get eliminated as businesses have to support the cost increase in some other fashion than price hikes.

And it's not even the working poor that gets helped in the increase. The working poor may have started at minimum wage, but they move up as they progress in their jobs. It is an absolute fallacy to argue that minimum-wage workers have not gotten a raise since the last federal increase of the minimum wage; they get raises as they increase their value to their employer, not from Uncle Sam. Anyone who has worked at the minimum wage since 1997 is either switching jobs too often to get a raise or is not very productive. The people making minimum wage are by and large temporary workers and people who make most of their living through tips, the latter comprising three out of every five minimum-wage workers. It's not an accurate reflection of their standard of living.

Will has it right -- the minimum wage should be zero. Unfortunately, the politicians don't get re-elected when they tell Americans that they can't solve their problems, and so we get these splashy systemic solutions to issues that either don't exist at all or only affect a narrow slice of the nation. The rest of us get to pay for it, and the people with the least ability to withstand the economic consequences pay the most for it.

Perhaps we should insist on an increase in the minimum common sense of Washington officials.

Sphere It Digg! View blog reactions
Posted by Ed Morrissey at January 4, 2007 6:13 AM

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