Hurting poor in name of helping them
Author: Craig Garthwaite
Publication Date: May 2004
Newspaper: The Orange County Register
Topics: Minimum Wage
A minimum wage hike is wending its way through the Assembly, and it’s a whopper. There’s hope that sanity will prevail in Sacramento, as it did in March in New Hampshire, where legislators had the good sense to kill a similar effort. If it doesn’t, many low-skilled workers may not last at their jobs long enough to see their wages increase, or be able to find jobs at all.
If wage-hike advocates in the Assembly have their way, employers will be forced to pay their workers at least $7.75 an hour, a 15% increase from the state’s current minimum wage. Past experience has shown that the least skilled workers, those that tend to be below the poverty line, take it on the chin after such an increase, as employers scramble to lower or justify their labor costs.
Typically, one of three things occurs. Higher labor costs prompt employers to invest in technology that will perform many entry-level tasks, or to simply lay off staff and offer a lower level of service to customers (It was the fast food industry that “taught” customers to clean their own tables). Employers also look for higher skilled employees to justify the inflated wages they must pay. And these applicants are not hard to find.
Recent research by Duke University economists shows that the nation’s lowest skilled workers find job searches more difficult after a minimum wage hike, as higher skilled workers are drawn to the market by the new higher wage rate. A wage hike to $7.75 an hour could reduce a job seeker’s odds of finding a job by as much as 4%.
It’s easy to imagine a high school senior, once uninterested in a position paying $6.75 an hour, attracted to that same position by a rate of $7.75. It’s not hard to envision teenagers securing entry-level jobs over adults who never finished high school.
The struggle by low-skilled individuals to find a job after a wage hike is rarely considered in the policy debate. Minimum wage advocates crow that unemployment rates changed little after the last federal wage increase. This is offered as evidence that the policy doesn’t destroy jobs. But the Duke study confirms that even if the jobless rate holds steady, the lowest skilled workers are, indeed, crowded out.
These findings are not surprising given what we already know about beneficiaries from this wage increase: They are not poor. According to U.S. Census data, their total household income average is more than $43,000 a year. Many of these earners are teenagers in six figure income households.
To be sure, single or sole earner parents (18% of statewide minimum-wage earners) can always use a hand in providing for their families. But reducing their ability to find or hold a job is not the answer.
It may sound obvious, but the best way to help the working poor earn more money is to keep them employed, and not further hinder their access to jobs.
As it stands, nearly two thirds of minimum wage employees who continue working will earn more than the minimum wage within 1- 12 months, according to a study by Dr. William Even of Miami University of Ohio and Dr. David Macpherson of Florida State University, which looked at employment data spanning 23 years. In that time, the data show, the median annual growth in wages for minimum wage employees has been nearly six times that of employees earning above the minimum wage.
Staying employed also allows the working poor access to other government benefits, including the Earned Income Tax Credit (EITC), one of the more successful anti-poverty programs in the U.S. The EITC provides the full-time working poor up to $4,000 a year on top of their earned income. But as its name implies you must earn income to get the credit. And for that you need a job.
Craig Garthwaite is Director of Research at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.