Minimum wage hikes cost the recipients
Author: Kristen Lopez Eastlick
Publication Date: September 2003
Newspaper: Boston Herald
Topics: Minimum Wage
This Labor Day, America faces a profound choice over the fate of its low-skilled work force. We can follow a crowd of prominent Democrats including Howard Dean, John Kerry and Dick Gephardt, who are teaming up with Old Deal liberal warrior Sen. Edward Kennedy to promote an increase in the federal minimum wage by 29 percent. Or we can move forward on the path first established by President Bill Clinton when he bucked decades of Democratic Party tradition to sign the Welfare Reform Act of 1996.
The old school approach says low-skilled workers are dependent on government for a raise, while Clinton’s approach insists that these same people can improve their lives by their own efforts.
Big government traditionalists who adhere to the old approach now threaten to undermine the latter.
Never in a hurry to update his ideology, Kennedy’s proposal couldn’t have come at a worse time. When Congress returns, it must vote on the renewal of welfare reform. Their vote comes just as a new study by Peter Mueser and Kenneth Troske of the University of Missouri finds that Clinton’s 1996 decision to ignore the Old Democrats has paid dividends for America’s poor.
The study finds that the employment rate of welfare recipients has doubled since the early 1990s, and they are 25 percent less likely to return to welfare once they leave.
Moreover, welfare recipients enjoy earnings 27 percent higher than those of their counterparts before welfare reform. By acquiring the skills and experience that come with on-the-job training, they aren’t unique. Virtually everyone who starts at minimum wage will increase his or her earning power simply by being in the game.
This contrasts sharply with Kennedy’s view that there is a minimum wage class perpetually dependent on the benevolent alms of politicians to raise their income. Research from Miami University of Ohio refutes this. It found 65 percent of minimum wage workers increased their wages within 12 months of being on the job.
Solid academic research further suggests welfare reform helped the children of welfare recipients break free of welfare dependency from one generation to the next. Research by Casey Mulligan of the University of Chicago has shown that children growing up with parents who work have greater “labor force attachment” than those whose parents are on welfare. Sadly, the converse is also true. Mulligan found that for every extra year a mother spent on welfare, her child spent an average of 274 additional days on welfare as an adult. The value of work is greater than the paycheck.
In contrast to the success of welfare reform, minimum wage hikes have done far more harm than good. Scores of studies have found that as increases in the minimum wage raises labor rates, competition for jobs heats up. Ultimately, employers hire workers with better skills, while many former and current welfare recipients are left out in the cold.
David Neumark of Michigan State University concluded that increases in minimum wages “raise the probability that higher skilled teenagers leave school and displace lower skilled workers from their jobs.”
The skill deficiencies of welfare recipients, whose illiteracy rate is upward of 30 percent, prevent them from competing with better-educated workers.
According to University of Wisconsin research, welfare mothers in states that raised their minimum wage stayed on welfare 44 percent longer than their counterparts in states that did not raise the wage. The study’s author, Peter Brandon, concluded:
“Increases in the minimum wage may further disadvantage those women (on welfare) if employers are more likely to select teenagers possessing a high school diploma.”
This decision by employers to choose teenagers over welfare recipients helps explain why the average family income of a minimum wage worker exceeds $40,000 a year. Many of them live with their parents.
Commenting on the enactment of the nation’s first federal minimum wage, President Franklin D. Roosevelt’s own secretary of labor noted in a 1939 report to Congress that “workers who have been receiving less than the new minimum wage had been laid off and replaced by more efficient workers.”
The welfare reform that was hailed as an inspired New Democrat approach to a failed social policy has increased the earnings and job opportunities of America’s poor and now that progress is threatened by an Old Democrat idea.
As Congress heads back to Capitol Hill, lawmakers would do well to stop this 1930s relic from reversing the hard-earned success of America’s poorest families.