Cruel To Be Kind

Tuesday's World Events — Posted on September 5, 2006

(by Timothy Lamer, WorldMag.com) – The suburban teenager who works at a burger joint has something in common with the single mother who buses tables to provide for her children. It’s the same thing they have in common with the middle-class wife who works part-time to help balance the family budget.

They all earn the minimum wage (or at least many of them did when they started their jobs), and they were the focus of congressional debate in recent weeks over a proposal to raise the national minimum wage from $5.15 per hour to $7.25 per hour.

For a coalition of liberal Democrats and moderate Republicans, the issue is a no-brainer. “There’s no state in America where $5.15 an hour meets the basic needs of a working family,” said Sen. Ted Kennedy (D-Mass.). “We have waited far too long to give these hardworking men and women a raise.” Sen. Hillary Clinton (D-N.Y.) called raising the minimum wage “the right thing for hardworking Americans” and compared it to recent pay raises that members of Congress have given themselves: “If Congress can get a raise, we certainly should be able to give a pay raise to working families.”

Such arguments clearly resonate with much of the American public, and House GOP leaders, who initially blocked a bill to hike the minimum wage from coming up for a vote, decided to allow a vote on July 29. It passed overwhelmingly, 230 to 180, but with a catch: The increase in the minimum wage is tied to a reduction in the estate tax that House leaders have been advocating for years. This “poison pill” almost assures that the $7.25 minimum wage will not pass the Senate, where a reduction in the estate tax is unpopular.

The irony is that this could be the best possible outcome for many poor workers. Despite the rhetoric coming from Capitol Hill, many economists have long doubted the effectiveness of minimum wage laws. The problem with using the minimum wage to help the poor, says James Sherk, a policy analyst at the Heritage Foundation, is that “most people getting the minimum wage aren’t poor.”

Only about one-fifth are at or below the poverty line, he points out, with the average family income of a minimum wage worker being about $40,000 per year. A majority are part-time workers, including a lot of college students and suburban teenagers, and they don’t stay at the minimum wage very long: Two out of three receive a pay raise within a year.

A bigger problem is that a hike in the minimum wage, while helping some low-skilled workers, could actually hurt others. The reason: If a worker’s labor isn’t worth the required $7.25 per hour to a particular company, then that company may decide not to hire him. Opponents of a higher minimum wage argue that this effect would keep employers from creating the entry-level jobs that low-skilled workers need to gain a foothold in the employment market and learn skills that will help them command higher wages later.

This could explain why studies, such as one by Ohio University economists Richard Vedder and Lowell Gallaway, show that minimum wage laws have not had much effect on poverty. A better poverty-fighting tool, say opponents of the hike, is the Earned Income Tax Credit. By targeting only poor workers, it directs money to those who need it without the risk of pricing them out of the job market. “If it’s not working,” says Sherk of the minimum wage, “why keep beating the same drum?”