Minimum Wage the Case Against

Minimum Wage The Case Against the Minimum Wage Many people think of the minimum wage in the U.S. As being a central feature of the safety net provided to citizens. According to this conventional wisdom, the minimum wage especially supports low-skilled and under-educated Americans from being taken advantage of in the labor market. It assures a baseline for what employers can legally pay, and thereby props up the economy as a whole.

It encourages skill development and creates conditions whereby people may gain work experience that will then allow them to obtain a higher-paying job. These arguments are loudly proclaimed from interest groups whenever Congress is considering a hike in the minimum wage. But this conventional wisdom is wrong. Decades of research clearly demonstrate that the existence of a minimum wage does little to help the very people it is intended to protect. Background & History The minimum wage was initially created through the Fair Labor Standards Act (FLSA) in 1938.

At that time, the minimum wage was set at 0.25/hour. Since then, the rate has been increased more than 20 times to its current rate of $7.25. States are permitted to pass different minimum wage rates that are considered more appropriate for local costs of living. For example, several states have enacted minimum wage laws that set the base pay over $8.00/hour and then tie future changes to inflation rates; Wyoming currently has the lowest minimum wage at $5.15/hour (U.S. Department of Labor).

Jobs that include compensation from tips, such as serving in a restaurant, are exempt from the minimum wage. Other exemptions exist for younger workers and temporary employment, but the vast majority of American workers are subject to the FLSA. At the time of its original passage in 1938, the Law was hailed as a tool for the "elimination of labor conditions detrimental to the maintenance of the minimum standards of living necessary for health, efficiency and well being of workers." (FLSA, 1938).

The Argument If the FLSA and its subsequent rate increases were indeed providing protection for the working class, we might expect to see decreased poverty rates and increased standards of living for those who are paid at the bottom of the employment ladder. That has not been the case. In order to fully explore the impacts the minimum wage has had on those who receive it, it is important first to define who the recipients of minimum wage are. In 1998, 17% of all workers were paid minimum wage.

Of those, 27% were teenagers, and 62% were women (Turner, 1999). The majority of minimum wage earners were working part-time, defined as less than 20 hours/week (Turner, 1999). Of all minimum wage workers, only 15% are living at or below the poverty line (Kersey, 2004). From this evidence it is safe to conclude that the minimum wage has the greatest impact on youth and women, that most of those people are working only part-time, and that most exceed the federally-defined lowest income category.

The bulk of the research on minimum wage has focused on the economic and social effects of raising the rate; for example, researchers want to know if raising the wage floor will lead to decreased job availability, increased unemployment, or changes in worker's skills. Scholars and economists have conflicting answers to those questions. Some will argue that reducing the minimum wage will actually increase employment opportunities, but others present evidence to the contrary (Krugman, 2009).

Results of these and other, similar lines of inquiry have been so often contradictory that one researcher concludes that "little empirical evidence supports either the opponents' or the proponents' hypotheses." (Turner, 1999, p.9). Our interest here is less in the measurable effects of increases to the minimum wage, and more in the overall impact of a minimum wage as federal policy. However, calling upon research that focuses on changes to the minimum wage is revealing because it uncovers patterns.

Research since 1938 has overwhelmingly shown that the goals associated with enacting a federal minimum wage have not been realized. Economists have consistently argued that the very existence of a minimum wage reduces employment opportunities for low wage workers. A small business, for example, may have work that needs to be done but can't afford to hire a minimum wage worker; that is one less job that will be offered and, perhaps, willingly taken. Recent research has supported this contention (Turner, 1999).

Reduction of poverty is the crux of any argument for enacting a minimum wage, and yet in the 72 years since the first minimum wage was created in the U.S., poverty rates have not been substantially reduced (Joint Economic Committee, 1995). Instead, the existence of a minimum wage has been shown to offer opportunities for a few as they use entry-level employment as a stepping stone (Kersey, 2004), while at the same time negatively impacting some of the socio-economic groups most in need of assistance in the U.S.

To wit, a synthesis of 50 years of research on the minimum wage draws the following conclusions: the minimum wage disproportionately hurts African-Americans, low-wage regions (such as the South), unskilled workers, and the young (Joint Economic Committee, 1995). Teenagers are of particular interest, not only because so many of them enter the workforce at minimum wage, but also because their trajectories as they age may be studied.

Research suggests that "higher minimum wages have significant negative effects on the employment prospects of less skilled teens, losses which are masked by their replacement in the workforce by more highly skilled teens. In addition, increases in the minimum wage are associated with an earlier age for leaving school." (Neumark, 1995) Thus, even at the earliest stages of employment, the minimum wage is seen to favor more highly skilled workers at the direct expense of the very people it is designed to protect.

The minimum wage is also shown to discourage education, since the promise of a livable wage is enticing enough for teens that they may opt to drop out of school and work instead. Over time, un-educated teenagers are less likely to earn more money or achieve success in the labor market beyond entry-level, minimum wage work. The minimum wage, then, encourages teenagers to drop out of school and work at the same time as it weeds.