Increasing lowest wages harms poor

Original Article:

  • Author: Craig Garthwaite

  • Publication Date: September 2004

  • Newspaper: Los Angeles Daily News

  • Topics: Minimum Wage

“One thing I learned about America,” Gov. Arnold Schwarzenegger told the Republican National Convention last week, “is that if you work hard and play by the rules, this country is truly open to you. You can achieve anything.”

Schwarzenegger should keep those words in mind as he considers a bill – now sitting on his desk – to increase California’s minimum wage to $7.75 an hour. The governor must flex his legislative muscle and veto this job- killing legislation, which would stifle opportunities for California’s most vulnerable employees.

The hard facts: 18,600 California employees are expected to lose their jobs if Schwarzenegger signs this bill. These job cuts will cost displaced employees $220 million.

Those figures come from David Macpherson, an economics professor at Florida State University, who used Census Bureau data to study the consequences of the Legislature’s minimum-wage proposal. And they become even more troubling when you look at who will be most affected.

Macpherson’s research indicates that the majority of employees who will be out of work lack a high school diploma. These low-skilled adults already have enough trouble finding a job. The unemployment rate for adult high school dropouts is 50 percent higher than the national average.

Minority groups will also suffer disproportionate harm. Latinos make up 31 percent of the total California labor force, but Macpherson’s research shows that they will account for 58 percent of the job losses if California hikes its minimum wage by the proposed 15 percent.

Perhaps worst of all, nearly 4,000 of the lost jobs will affect families earning less than $12,500 a year – a group generally without a lot of savings to fall back on.

Employees who are terminated because of a minimum-wage increase lose more than their salaries. They also forfeit their federal earned income tax credit, which pays up to $4,000 tax-free to those with low incomes – but only if they have a job.

Considering the huge costs associated with the proposed hike, the accompanying benefits are downright paltry. Macpherson’s study found that the increase will provide an average bump for minimum-wage employees of just 3.3 percent in family income.

That’s because the average family income of those who would be affected by the increase is more than $41,000 a year – significantly higher than supporters of a minimum-wage hike admit.

Most people are surprised by who actually makes the minimum wage. In general, it’s not moms raising kids on their own. Only 20 percent of those who would benefit from the proposed increase are single wage earners with children. The number living with their parents or another relative is 75 percent higher.

Perhaps even more surprising is how poorly a minimum-wage increase targets those most in need. One study by Syracuse University researchers found that 83 percent of the benefits from the last federal minimum-wage hike went to families above the poverty line. The richest 40 percent of American families profit more from a minimum-wage increase than the poorest 20 percent.

Simply put, the minimum wage is a terrible anti-poverty tool. The average poor family in California would see just $3 more a week from the proposed increase. As President Clinton’s first labor secretary, Robert Reich, noted: “After all, most minimum-wage workers aren’t poor.”

Research from the Federal Reserve and Michigan State University concluded that a minimum-wage hike causes about as many people to enter poverty as to leave it. One of the study’s authors, now at the Public Policy Institute of California, subsequently argued that, as a result of a minimum-wage increase, “on net, poverty seems to rise, … likely because the job losses associated with a higher minimum wage fall disproportionately on poor families.”

Schwarzenegger must pump up job growth and keep the doors of opportunity open to all Americans, not weaken an already shaky economy by washing away more than 18,000 jobs.