Who Really Makes the Minimum Wage?

Original Article:

  • Author: Michael Saltsman

  • Publication Date: April 2011

  • Newspaper: Northwest Indiana Times

  • Topics: Minimum Wage

Indiana and Illinois share a border, but the similarities between the two end there.

While the Illinois Legislature considers taxes and mandates, Indiana’s has focused on making the state more business-friendly. For instance, legislators in Springfield have tried to raise Illinois’ minimum wage to $10 an hour or more; in Indianapolis, legislation has advanced that would prohibit individual cities and counties from mandating a minimum higher than the state level.

Illinois’ minimum wage legislation might poll better. Who doesn’t want to provide more for a working family to help get by in tough economic times? But a new study from Bradley Schiller, of the University of Nevada-Reno, suggests that the conventional wisdom on who earns the minimum wage is wrong — and perhaps Indiana’s legislators are on to something.

Minimum wage increases enjoy broad support because voters think they help the working poor. What most don’t realize is that nearly 50 percent of those in Indiana who benefited from the last federal minimum wage increase were either teenagers or others living with parents or relatives. Only one in six minimum wage beneficiaries was a single mother.

But what about other adults who earn the minimum wage: Do they fit the picture of the impoverished parent that’s just scraping by? Schiller’s new study shows that they do not.

Schiller examined data from the National Longitudinal Survey of Youth between 1998 and 2006, when the federal wage remained static, to determine the characteristics of minimum wage earners between the age of 33 and 50 and their families.

What he found will surprise you: In close to 95 percent of families with children where an adult worked a job paying at or below the minimum wage, the spouse worked as well. And more often than not, the spouse wasn’t working a minimum wage job.

Consider this finding: Among all adults with children who earned less than $10,000 a year, almost half had a spouse that earned more than $40,000 a year. Another 27 percent had a spouse earning between $20,000 and $40,000 a year.

In other words, three out of four adult minimum wage earners who are supporting children are in households earning substantially more than poverty-level wages.

Further, these adult minimum wage earners aren’t stuck in neutral. Schiller’s research shows 95 percent of them also earned more than the minimum wage during the period studied.

But what about the few workers who continue to make the minimum wage for an extended period of time? Don’t they deserve a raise? Paradoxically, the very workers voters want to help are the ones most hurt by increases to the minimum wage. The increased labor cost forces employers to replace inefficient employees with more efficient ones, or eliminate positions altogether.

The data back this up: A survey of two decades of research on the subject by David Neumark (University of California, Irvine) and William Wascher (Federal Reserve Board) found that 85 percent of the best studies agreed that minimum wage increases cost some low-skilled workers their jobs.

So what’s the alternative for states that want to reduce poverty? Expanding the earned income tax credit is a better way to pull poor families out of poverty. University of Alabama and East Carolina University economists discovered that 2.5 times as many people would have been lifted out of poverty by expanding the federal EITC instead of raising the minimum wage between 2007 and 2009. And research from the University of Georgia found that expanding the EITC boosts employment: Every 10 percent increase in a state’s EITC supplement is associated with a one to 1.5 percent increase in employment for single mothers.

Legislators need to think through policy solutions and not haphazardly support feel-good measures such as minimum wage increases. There are real costs beyond money to consider. Indiana gets that; Illinois does not.

Michael Saltsman is the research fellow at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment. The opinion expressed in this column is the writer’s and not necessarily that of The Times.