Minimum Wage Hike is an Empty Promise for Low-Income Families

Sixty years of research shows minimum wage hikes put low-skilled adults out of work and have no impact on poverty
  • Publication Date: May 2007

  • Topics: Minimum Wage

WASHINGTON – On May 25, President Bush quietly signed a bill raising the federal minimum wage from $5.15 to $7.25, but the Employment Policies Institute (EPI) warns that minimum wage hikes are a failed anti-poverty tool and have historically put low-skilled Americans out of work.

Minimum wage hikes destroy jobs

Separate studies from Duke, Michigan State, and Boston University all conclude that minimum wage hikes attract teenagers from wealthy families into the workforce, displacing low-skilled adults in the process.

Economists at Cornell University and the University of Connecticut found that a 10% increase in the minimum wage results in an 8.5% increase in unemployment for young African Americans and adults lacking a high school diploma. In fact, results from a University of California, Irvine study implies that a $7.25 minimum wage hike would lead to a rise of as much as 15.6% in unemployment among young minorities and 26.4% among minority teens.

Minimum wage hikes don’t target low-income families

Not only would a minimum wage hike jeopardize the jobs of low-skilled adults, but it is also a grossly ineffective way to assist low-income families for the simple reason that most minimum wage earners come from families that aren’t poor. In fact, according to federal data the average family income of those who would benefit from the hike is $46,889 a year.

Recent research from Cornell and the University of Georgia found that only 3.8% of the benefits from hiking the federal minimum wage to $7.25 would go to poor single mothers, and only 3.7% of the benefits would go to poor African American families even if there was no job loss. In contrast, over 87% of the benefits would go to families that aren’t poor.

There are better ways to help low-income families

Instead of raising the minimum wage, Congress can have a real impact on the lives of low-income Americans by supporting an expansion of the Earned Income Tax Credit (EITC). Unlike minimum wage hikes, the EITC effectively targets benefits to those in need without jeopardizing jobs. In fact, a new study from the Congressional Budget Office (CBO) showed that the EITC helped the bottom fifth of households with children to increase their earnings by 80 percent between 1991 and 2005, which was a bigger increase than any other quintile.

“It’s ironic that the President signed a minimum wage increase the same month the Congressional Budget Office reported the positive effects of the Earned Income Tax Credit,” said Jill Jenkins, EPI’s Chief Economist. “The evidence overwhelmingly indicates that minimum wage hikes will hurt where the EITC can help. This bill is a mistake, and low-income families will pay for it.”

The Employment Policies Institute is a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment. For more information or to schedule an interview, please contact J.P. Freire at (202) 463-7650.