Tuesday, January 07, 2014

What do minimum wage demographics say about raising the wage?

There has been a lot of uproar in the media lately about raising the minimum wage so that those people earning it would earn a “living wage.” But what do demographics about those earning the minimum wage tell us?

According to the Current Population Survey (CPS), which is a joint effort of the Bureau of Labor Statistics and the Census Bureau, 3.7 million workers reported earning the minimum wage of $7.25 or less per hour. Now 3.7 million is a lot of people, but when looking at the entire workforce, it’s a small portion – only 2.9 percent. Slightly more than half of them are aged 16 to 24, and 62 percent of that group are students.

Nearly 80 percent of those earning the minimum wage work part-time jobs and belong to families that earn nearly triple the poverty level for a family of four at $65,900 a year, while only 22 percent live at or below the poverty line. Three percent have finished college and obtained a degree, and 5 percent are married.

Many of those aged 25 and older work in jobs where they also earn tips, like restaurant workers, so their total pay most nearly always exceeds the minimum wage. While most do not live in middle- and upper-income families, they also are not living in poverty, having an average family income of $42,500, just less than double the $22,350 poverty line level for a family of four.

Advocates of raising the minimum wage – and many minimum wage earners who respond to the hype those advocates produce – complain that you can’t raise a family or even live a decent life on the minimum wage, so therefore it should be raised to provide a “living wage.”

When you realize that only 3 of every 100 workers earn the minimum wage, the problem doesn’t seem as dire as the advocates for a wage hike want you to believe. And when you look at the kinds of work that minimum wage earners perform, and who minimum wage earners are, it seems even less dire. These jobs require little education or training, and are overwhelmingly held by young people living at home.

Based upon the demographics, there’s no economic reason for a higher minimum wage.

You won’t find trained and educated people like electricians, mechanics, carpenters, plumbers, nurses, pilots or teachers, or lawyers, doctors, CPAs, engineers, and others who have gotten an extensive education and additional training making minimum wage, or anything near it.

But more importantly, the number of minimum wage employees who really need a “living wage” because of family or unusual personal needs is very small, and there are better ways to help them.

Assuming all minimum wage employees worked 20 hours a week, a $2 increase in the minimum wage would cost employers $2,080 a year for each employee, plus increased payroll taxes. For all 3.7 million workers, the increase would cost $7.7 billion a year, plus increased payroll taxes. Those working more than 20 hours a week adds even more costs.

Additional costs arise when those making between the old and new minimums get increases to get them to the new minimum, and when those making close to the new minimum get increases to keep them proportionately higher than the new minimum. The costs would be substantially higher than $7.7 billion. And guess who bears that cost? Employers? No.

Consumers will pay higher prices, producing reduced sales, and those higher prices will also affect those who just got a raise.

A Heritage Foundation research report released last February notes that while many advocates of higher minimum wages suggest a higher wage “to help low-income single parents attempting to survive on just a minimum-wage job … just 4 percent of minimum-wage workers – or 148,000 – are single parents working full-time, compared to 5.6 percent of all U.S. workers.”

To add billions in increased consumer costs to benefit a relative few doesn’t make sense. They need to become qualified for better paying jobs, and if that is difficult or impossible for them, and if government is going to provide welfare, those people should receive help.

“Contrary to what many assume,” the Heritage report notes, “low wages are not [the] primary problem [of the poor], because most poor Americans do not work for the minimum wage. The problem is that most poor Americans do not work at all.”

The faction promoting a higher minimum wage consists primarily of two types of people: those who do not understand or don’t care about the most basic concepts of business economics, and politicians who benefit from pandering to minimum wage earners.

Current government policies are designed for purposes other than to help people escape poverty; therefore government needs to start encouraging job creation so that people in poverty have better opportunities to take control of their own lives and work their way out of poverty.

Returning America to the land of opportunity it used to be, where people were able to go as far in life as they were able, should be President Obama’s major goal.


TexasFred said...

Personally I see minimum wage as an incentive... An incentive to train in a new profession, to get the schooling necessary to advance your lot in life.. People that work a lifetime for minimum wage simply may never have been motivated to do better.. Just my .02 worth..

James Shott said...

You are 100% on target. Many of those working for minimum wage and wanting a raise are looking for a free ride; they don't want to learn a trade, or to do anything to help themselves.

They are Obama voters who think this is what life is all about.