Raising A Touchy Subject
Author: Michael Saltsman
Publication Date: March 2011
Topics: Minimum Wage
If I told you that a particular public policy would lead to increases in unemployment among the least skilled workers, and do nothing to alleviate poverty, you’d probably call that policy “anti-worker,” and for good reason.
Yet these facts have been ignored in Missouri when it comes to the minimum wage. Despite reams of research showing that increases to the mandated wage result in the negative consequences listed above, advocacy groups still toss facts aside and engage in factually questionable rhetoric.
Their current point of contention is the proposed change to stop indexing the state minimum wage to inflation. Missouri Jobs with Justice started an online letter-writing campaign urging legislators to “Save Our Raise.” One can see the emotional appeal of such a move: After all, who wants to see minimum wage employees toiling away with no chance to ever move up the ladder?
Unfortunately for Missouri Jobs with Justice — and fortunately for actual minimum wage employees — research from economists out of Miami University and Florida State University shows that the average minimum wage earner receives a raise on the merits of their work in the first one to 12 months on the job. In fact, between 1998 and 2002, when the federal minimum wage was constant, minimum wage earners saw average real wage growth as high as 88 percent.
Of course, minimum wage employees can’t earn those raises if they’re locked out of the workforce, and there is broad agreement among labor economists that an increase in the minimum wage does just that. For instance, research from Dr. Joseph Sabia, a labor economist at West Point, finds that each 10 percent increase in a state’s minimum wage decreases employment for the least experienced by as much as 3.6 percent.
Perhaps we can sacrifice a few minimum wage jobs if we’re raising people out of poverty, right? Wrong: 28 states increased their federal minimum wage above the federal level between 2003 and 2007, yet award-winning research in the Southern Economic Journal shows that these increases had no effect on poverty rates.
How to explain this counterintuitive finding? Consider this: In Missouri, the average family income of a beneficiary of the most recent federal minimum wage increase was $49,236 a year, according to the Census Bureau. It reflects the fact that half these beneficiaries were teens or others living with their parents or another relative. Indeed, only one in 10 workers who saw a bump in pay from the minimum wage was a single earner supporting children.
Simply put, Missouri doesn’t need an indexed minimum wage to reduce their poverty rate. A better way to help the poor would be to introduce a state supplement to the Earned Income Tax Credit. The EITC is tailored to specifically help working folks hovering around the poverty line, without the unintended employment consequences that come from an indexed minimum wage.
Michael Saltsman is the research fellow at the Employment Policies Institute, a not-for-profit research organization dedicated to studying public policy issues surrounding entry-level employment.