Minimum Wage Hike Could Increase the Uninsured

by Sean Tuffnell

Senator Kennedy and his liberal allies are at it again. Just about every Congress, as the election season approaches, Democrats like Kennedy and House Minority Whip David Bonior shout from the mountain tops that we need to raise the minimum wage, regardless of how high it is or when we raised it last.

It appears that this year is no different. The forces that be have been marshalling political support in Congress all year for yet another increase in the minimum wage. This time, they would raise the hourly wage by $1, from $5.15 to $6.15, in two steps over the next year and a half.

Who would be affected by such an increase? Supporters like to paint a picture of a family of four trying to survive on a single minimum wage paycheck. Yet while anyone can find some anecdotal evidence to support such a case, it is clearly the exception and not the rule. The minimum wage is and always has been a start out wage and not one that is to be relied upon long-term to support a family of four.

According to the Economic Policy Institute, about 11.8 million workers would be affected by this minimum wage increase. The majority of these are teen-agers and part-timers. In both cases, they are typically people who are just entering the labor force and are there to learn the basics of showing up on time and shouldering responsibilities, while earning a little extra money.

So why all the hubbub? The minimum wage does receive a tremendous amount of support from organized labor, despite the fact that hardly any of their members actually work for the minimum. This is because union contracts are usually designed on a scale. If the minimum increases so does the rest.

Wage hikes do have consequences however. Economists have traditionally warned that a higher minimum wage causes more people to be unemployed. But recent studies point to an even more serious consequence that Kennedy and Bonior should think about; a higher minimum wage could mean fewer fringe benefits, including health insurance.

One of the most important employer benefits that substitutes for money wages is employer-provided health insurance. In a recent study for the Board of Governors of the Federal Reserve System, economist Louise Sheimer concluded that in most cases the trade-off is dollar for dollar. Thus, for low-paid employees with health insurance, a $1 per hour increase in the minimum wage could result in a $1 per hour decrease in employer-provided health insurance. With nearly a million single mothers working for the minimum, many who also receive health insurance, supporters need to be careful what they wish for.

Those earning lower wages are already more likely to lack health insurance. An increase in the minimum wage will induce even more employers to drop or reduce health insurance benefits, resulting in a further increase in the number of uninsured.

What happens if employers can't reduce fringe benefits (say, because there are none) or are unable to make other adjustments? Then employees are in danger of losing their jobs. For example, after a minimum wage increase in New York, Walter Wessels, an economist at North Carolina State University, found that 4,827 stores reduced the number of workers, the hours they worked or both.

Most empirical studies have found that a 10 percent increase in the minimum wage lowers the employment of teen-agers by anywhere from 0.5 percent to 3 percent. With about eight million teen-agers in the workforce, this implies that a $1 increase in the minimum wage would result in as many as 240,000 more unemployed teen-agers.

Workers who retain their jobs are unlikely to be any better off than before. They get more money, but they also get fewer fringes and have to work harder for their pay.

For a group of politicians and special interest leaders that are constantly preaching about fairness, this doesn't seem to be fair, or compassionate to me.