There is a big push on by Democrats to raise the minimum wage to $10.10/hour (I’m sure that extra ten cents will make a big difference). If you’re cynical like me, you probably think they’re doing this to – 1) buy votes, and 2) distract us from the Obamacare disaster. But if you are naïve enough to believe there is good in everyone, including politicians, then you probably think there are some very good reasons for raising the minimum wage. To find out what these reasons are I ventured over to ThinkProgress.org and read a dumbed-down article entitled “Five Reasons To Raise The Minimum Wage Right Now”. The five reasons are:
1. It would boost the economy.
2. It would lift millions out of poverty.
3. It would help close the gender wage gap.
4. It’s an important racial justice issue.
5. Americans support a raise.
Hmmmm. Some of that sounds like it could be true, some of it sounds like baloney, and #5 is completely irrelevant. Let’s look into these claims. (for the sake of brevity I will use MW for ‘minimum wage”)
1. Will raising the MW boost the economy?
ThinkProgress referred to a study by the CBO based on a bunch of assumptions the Democrats ordered them to use and concluded that raising the wage would add 0.3% to economic growth. I took a different approach. The feds have assembled mountains of economic data can be used to see what happened in the past when the MW was raised. Since 1938 the MW has been changed 23 times, starting at $0.25/hour and rising to the current $7.25/hour. I compared economic growth in the year before the MW was raised to the year after to see if there was an economic boost. There were 11 times (48%) when the economy accelerated after the raise, but that means there were 12 instances when it slowed down.
Claiming a wage hike will juice the economy is as valid as flipping a coin and saying, “we’ll have improved growth if it comes up heads.” The first reason is hogwash.
2. Will raising the MW lift millions out of poverty?
This one sounds like it could have some truth to it. If you pay the poorest workers more, they’ll have more money and can improve economically, right? As it turns out, not really. First of all, the vast majority of workers paid the MW don’t live in poverty. They’re teens living at home with mom and dad, students in college, or retirees who got a part time job for some extra bingo money. There is a minority of MW workers who work fulltime to support themselves, but at 40 hours/week the current wage exceeds the federal poverty line for a single person of $11,490. Even after you deduct the income tax cleverly disguised as Social Security and Medicare contributions, a fulltime worker will make $12,282 at the current MW. Raising the wage won’t lift such a person out of poverty, because they’re not in it now.
That still leaves poor families with only one breadwinner, who really are in poverty. Again we can see what has happened to these people when the wage was raised in the past. The feds poverty statistics go back to 1959. Since then the MW has gone up 18 times. On 11 of those occasions (61%) the percentage of Americans below the poverty line went UP. Giving the working poor a raise didn’t make them richer, it got them fired! Or it made it harder for them to find a job (more on this when I discuss unemployment). So the second reason sounds good, but it’s not true either.
3. Will raising the MW close the gender wage gap?
I’m pretty sure when women refer to the “glass ceiling” they’re not talking about $7.25/hour. However, I decided to play along and see if MW hikes improve earnings for women versus men. Since the MW affects those at the bottom it made sense to examine poverty statistics again.
The Census Bureau began keeping track of poverty by gender in 1966. Since then the MW was hiked 16 times. In 11 of those instances (69%) the percentage of women in poverty went UP after the hike. In absolute terms it appears that women do worse when the MW goes up, but the “gender wage gap” is a relative comparison, not absolute. Did women do better (actually, did they do less worse) than men? We have another coin flip. Half the time women fared better when the wage was raised, but half the time the men did. It’s a wash. There’s no evidence that raising the MW will close the gender wage gap.
4. Will raising the MW help solve racial injustice?
We all know why this is included as a reason. If you oppose an MW hike you’ll be accused of being a racist. There couldn’t possibly be any other reason for thinking this is a bad idea, right.
As with gender, the Census Bureau began breaking out poverty statistics by race in 1966. 9 of the 16 wage hikes (56%) since then saw the percentage of blacks in poverty go up. When we look at unemployment statistics below, the data will give a clue as to why this happens. But you can’t say raising the bottom wage will create racial justice if the historically most oppressed race does worse over half the time when the wage goes up.
5. We should raise the MW because Americans support it.
In the past most Americans supported banning gay marriage, invading Iraq, banning marijuana, invading Vietnam, banning interracial marriage, segregation, prohibition, American Indian genocide, slavery, … The list of terrible things the majority of Americans supported is practically endless making this a terrible justification for anything.
And guess what ThinkProgress? The majority of Americans want to repeal Obamacare. Is that reason good enough for you?
As far as I can tell, the reasons given to justify an MW hike are inconclusive at best. But is there a reason to keep it where it is (or even get rid of it)? The one you keep hearing is that it will increase unemployment. Let’s look at that.
The BLS unemployment stats go back to 1947. Since then the MW has been raised 20 times. Looking at the population as a whole, unemployment rose for half of the wage hikes and went down the other half. Based on that it appears that raising the MW doesn’t affect unemployment, as advocates for doing this are quick to tell you. But if you’re talking about the MW, is appropriate to look at the total working population when only a small fraction are MW earners?
We know that teens working in their first job are a large chunk of those making the MW. How do they fare when the rate is hiked? Since 1947 unemployment among 16 to 19 year-olds went UP for 60% of the wage hikes. I wouldn’t call this conclusive, but it does indicate that raising the MW might make it harder to get your first job.
How do blacks fare? According to ThinkProgress they make up 42% of those earning the MW. Don’t put too much stock in this number, ThinkProgress also claims blacks are 32% of the total workforce when in fact they are only 12%. However, it is true that blacks make up a disproportionate percentage of MW earners. Since 1972 (start of data) the MW was raised 14 times. Unemployment among blacks went up 10 of those 14 times (71%). That’s pretty damning. It also helps explain why black poverty was more likely to increase when the wage is hiked. If you lose your job, or can’t get a job because you don’t have the skills to justify paying you minimum wage, you will be very poor.
I readily admit this is a cursory analysis of the data (statisticians, you can spare me your derision. I’m not going to argue with you.), but it does call into question the premise that raising the MW will do a lot of good and no harm. In fact, if you’re a low wage earning black, a minimum wage hike seems to be a bad deal for you.
If you get into a discussion with someone who thinks we should raise the minimum wage you can use the data to discuss reality with him. Or if you just want to piss him off ask, “why do you want to oppress poor black people?” Because that’s what raising the minimum wage will probably do.
Wayne Middlesteadt is the author of Five Ways To Beat The Market, proven methods to lower your risk while making above average gains in the stock market. For more information on the book visit http://www.slightlyangryoldman.com/Downhome/Five-Ways-To-Beat-The-Market
Data for this article came from:
Unemployment Rates – http://www.bls.gov/news.release/empsit.toc.htm