Good intent hits sour note
Author: Mike Flynn
Publication Date: July 2006
Newspaper: Atlanta Journal Constitution
Topics: Minimum Wage
H.L. Mencken once cannily remarked: For every complex problem there is a simple solution, and it is usually wrong.
Right now the nation’s complex problem is helping struggling families better provide for themselves. The simple solution is to raise the minimum wage. Unfortunately, good intentions are often trumped by the unintended consequences that have historically followed minimum wage hikes.
Higher labor costs only spur the trend of replacing marginal employees with self-service or automation. McDonald’s taught the nation to clean their own tables, oil companies taught us to pump our own gas, and janitorial companies cut costs by dusting less often or vacuuming on fewer days. Former Federal Reserve Chairman Alan Greenspan put it succinctly: “The reason I object to the minimum wage is I think it destroys jobs.”
Meanwhile, the supposed benefits are minimal. According to research by economists Richard Burkhauser of Cornell University and Joseph Sabia of the University of Georgia, only 3.7 percent of the benefits from a $7.25 minimum wage would go to poor African-American families and only 3.8 percent of the benefits would go to single mothers.
The recurring argument on behalf of a wage hike refers to its supposed timeliness. There is a nice bit of sophistry in claiming that America’s workers haven’t had a raise in nine years. The mental picture painted is inevitably of the same workers working steadily at $5.15 an hour for nine years straight. This is rhetorically effective, but patently absurd.
It mistakes the lowest rung on the employment ladder for the employee who is standing on it. The fact that the rung itself is stationary doesn’t mean that the person attempting to climb the ladder is as well. On the contrary: because the rung is fixed, the employee can more easily gain a footing in the first place, from which to move up.
Every year, nearly two-thirds of minimum wage employees receive a pay raise. The median wage increase for a full-time, minimum-wage worker is 14 percent per year. Since more than 85 percent of the benefits from a $7.25 minimum wage would go to families that aren’t poor, legislators should focus on low family income and not low wages. The Earned Income Tax Credit, which provides tax-free income to those most in need, is one of the best anti-poverty tools we have. Working families with incomes of under $25,000 a year receive 94 percent of federal EITC benefits. By contrast, only 11 percent of the intended recipients of a wage hike are a family’s sole earner. Of course, some people refuse to recognize these new realities. There was a time when “minimum wage employee” was synonymous with poverty. But, as liberal economist John Maynard Keynes once observed: “When the facts change, I change my mind. What do you do, sir?”
Mike Flynn is director of Legislative Affairs at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.