A Raise Won’t End Poverty
Author: Dr. Jill Jenkins
Publication Date: July 2007
Newspaper: The New York Times
Topics: Minimum Wage
Washington — HOW much do you think the average New York household with one minimum wage worker earns per year? $10,000? $15,000? $20,000?
Wrong, wrong and wrong.
It’s $53,370 a year, according to the latest census bureau figures. True, with that kind of money, a minimum wage worker won’t be buying the Knicks anytime soon. But it does put him comfortably in the middle class, with a big chunk of change between him and the poverty line.
Here’s another surprising statistic: less than 15 percent of minimum wage employees in New York are single parents supporting children. Most are teenagers looking to earn some extra cash or adults who are second or third earners in their families.
Unfortunately, these facts haven’t kept two powerful New York state legislators from trotting out the old myth that a minimum wage increase is a much-needed helping hand for the state’s poor.
Two Assembly members, Sheldon Silver and Susan John, are pushing for an increase in New York’s minimum wage to $8.25 an hour from $7.15 an hour. Their bill, introduced last month, made it only to the Ways and Means Committee before Albany went into recess. But given the clout of its sponsors — Mr. Silver is speaker of the Assembly and Ms. John is the chairwoman of the Labor Committee — there’s every reason to expect a vote when the Assembly is back in session.
Of course, you might ask, even if the vast majority of minimum wage workers aren’t poor, what’s wrong with giving them a boost?
For starters, there are some big costs associated with a wage increase. Businesses need to find the money to pay for higher wages, and that often means raising their prices. Before the last minimum wage increase in the state, in 2004, Cornell University economists estimated that it would cost consumers and employers more than $880 million a year — of that, less than a fifth was expected to go to poor families.
What’s more, wage increases get a lot of people fired. And the majority of people being handed pink slips are the ones already teetering on the brink of poverty.
Think about it this way: If you’re a business facing pay increases (without any corresponding jump in the skills of the people you employ), and you can’t raise prices because you’ll lose customers, who are the first people you’d get rid of? It’s not going to be your managers or mid-level employees. It’s going to be people on the bottom rungs with the least skills — those easiest to get along without.
Research bears this out. Economists from University of Georgia, the University of Connecticut and Cornell University have found that increasing the minimum wage causes four times more job loss for employees without a high school diploma and African-American teenagers and young adults than it does for the general population.
It’s the same sad story for a secondary provision in Mr. Silver and Ms. John’s bill: an increase in the amount businesses have to pay employees who make most of their income in tips. (Like most states, New York exempts employers from paying their employees who earn tips minimum wage and sets up a separate minimum pay level for tipped workers, with employers making up the difference should the wage plus tips be less than the state’s minimum wage rate.)
Here’s another number: $30,513. That’s the average annual salary of waiters and waitresses in New York State. Again, that doesn’t make them rich, but it does mean they’re making more than double the poverty level for a single person. And the average wage with tips is $14.67 per hour — well above the proposed minimum.
Restaurants, which employ a substantial portion of the state’s tipped workers, run on exceedingly thin profit margins. Indeed, recent federal estimates gauge the per-employee profit for restaurants as among the lowest for all industries. So even minor increases in their labor costs translate into substantial employment adjustments.
And who’s most likely to be dropped from a restaurant’s payroll? Busboys.
The minimum wage is an antiquated anti-poverty tool that hurts the people it’s supposed to help. Instead of raising it, legislators should expand the size and scope of the state’s earned income tax credit, which provides tax-free income to poor people who work (on top of income from the federal earned income tax program).
Since it doesn’t inflate the cost of hiring or retaining entry-level employees, the tax credit doesn’t jeopardize low-skilled workers’ job prospects. Moreover, the earned income tax credit is much more likely to go to the poor: 99 percent of its beneficiaries are in families with incomes below the 20th percentile.
It’s no wonder then that a recent report from the federal Congressional Budget Office shows that the earned income tax credit is one of the main reasons low-income families have seen their real incomes jump by more than a third during the last 15 years.
It would be good if the evidence caused Mr. Silver and Ms. John to rethink their approach. Instead of rejiggering a law that destroys jobs and doesn’t have any effect on actual poverty, they should push for programs like the earned income tax credit that encourage and reward hard work — the real ticket to the middle class.
Jill Jenkins is the chief economist at the Employment Policies Institute.