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Minimum Wage
1996
Welfare Mothers Less Likely to Work	Surprisingly, a higher minimum wage actually makes it less likely that welfare mothers will go back to work. That is the conclusion of a new study by Peter Brandon, a researcher at the University of Wisconsin's Institute for Research on Poverty. While a higher minimum wage did bring more people into the labor force, they were often better educated high school and college students. Unfortunately, the welfare mother with little education and work experience was "crowded out" by these competitors. Most minimum-wage workers are not the sole supporters of their families. Only about 11 percent of minimum-wage workers are either single parents or married in a one-earner family. And more than one-third of them live with their parents, according to a study from the Employment Policies Institute. Unions pushed an increase in the minimum wage because they stand to benefit indirectly -- since it would push up wages in the entire labor market. And higher labor costs inevitably get passed along to consumers in the form of higher prices. Source: Perspective, "Minimum Wage Mistake," Investor's Business Daily, April 4, 1996.
Cities, States Target Contractors	Several states have long had a state-mandated minimum wage above the federal level. In a new twist, some state legislatures and city councils have passed or are considering measures to require government contractors to pay workers more than the minimum wage. The Minnesota's legislature passed a bill requiring companies getting $25,000 or more in government aid or contracts to pay workers at least $7.28 an hour in wages and benefits -- but the state's governor is set to veto the measure. Baltimore and Milwaukee have passed laws to require firms with city contracts to pay more than $6 an hour -- with Baltimore planning to phase in hikes over four years to $7.70 an hour. Chicago, Los Angeles and St. Louis also have considered such proposals. The current five-year-old federally-mandated minimum wage is $4.25 per hour -- with proposals to increase that to $5.15. Advocates call the concept a "living wage," but critics wonder how many employers will remain in business once such laws go into effect. They say it will have a chilling effect on business, and will skew and disrupt markets. Source: Carl Horowitz, "Can Government Ensure a 'Living Wage'?" Investor's Business Daily, April 3, 1996.
Who Earns the Minimum Wage	Those who advocated increasing the minimum wage, primarily Sen. Edward Kennedy (D-Mass),contended that it is necessary to protect women and children. But statistical data portray a different story. Only 60 percent of those earning the minimum wage are women -- not 70 percent as Kennedy erroneously states. Of these, one-third are teenagers and well over half are under the age of 25. Twenty-nine percent are married with a spouse present, 69 percent are part-time workers and 10 percent are over age 60. These women are not likely to be the sole supporters of families. As of 1993, there were only 192,000 women and 22,000 men in the whole country who maintained families on a minimum wage job. They represented just 8 percent of those earning the minimum wage and a minuscule 0.2 percent of all wage and salary workers. The vast bulk of minimum wage workers are either teenagers living at home or secondary earners working part-time. As other liberals concede, the principal effect of raising the minimum wage is to reduce the number of jobs available, mainly those for minorities. Source: Bruce Bartlett (National Center for Policy Analysis), "Playing Minimum Wage Politics," Washington Times, April 8, 1996.
Complex Effects of the Minimum Wage	Hiking the federally mandated minimum wage probably won't cause hundreds of thousands of workers to lose their jobs -- but neither will it improve workers' long-term welfare, according to a new brief analysis from the National Center for Policy Analysis. The more likely effects of a minimum wage hike, predicts economist Richard McKenzie of the University of California - Irvine, are: Few low-paid workers will lose their jobs, but those who keep them -- and other workers -- will likely be worse off. Employers will reduce non-money types of pay -- primarily health insurance or other fringe benefits -- to keep their labor costs from rising. Although few jobs may be lost, far more jobs will never be created. Thus, increasing the minimum wage may increase the number of workers without health insurance. Since employers may spread the impact of increased labor costs across the entire workforce, benefits may be reduced for all workers. Employers have paid lower real minimum wages over the years, but expanded other forms of payment, including fringe benefits, workplace amenities and relaxed work demands. These benefits were worth more to the workers than the wages they gave up in exchange. When they are taken away after the minimum-wage hike, workers will lose more in value from the benefits forgone than they will receive from the higher money wage. Low-income jobs are mostly held by inexperienced workers who are not very productive. If new low-wage jobs are not created, these workers are not likely to be hired for higher-wage jobs, and economic growth will be lower. North Carolina State University economist Walter Wessels, a minimum wage scholar, estimates that minimum-wage workers are indeed made worse off, on balance, each time the minimum wage is hiked. Source: "Complex Dynamics of the Minimum Wage," Richard McKenzie, Brief Analysis 204, May 28, 1996, National Center for Policy Analysis. For full text...
Armey/Campbell: Rising Unemployment Follows Increases	Since 1973, the nation has increased the minimum wage nine times, over two-year periods. In every two-year period except one, unemployment increased. The single exception was in the period 1977-79, when the economy was expanding. House Majority Leader Dick Armey (R-TX), a former economics professor, looked at how increases in the minimum wage have affected employment in recent two-year periods. Directly following a 32 percent increase, unemployment rose from 4.9 percent to 8.8 percent in the period 1973-75. When the minimum was increased 17 percent, the unemployment rate jumped from 6.1 percent to 7.1 percent from 1978 to 1980. In the period 1979-81, unemployment increased from 5.8 percent to 7.6 percent after the minimum was increased 16 percent. Most recently, 1989-1991, unemployment zipped from 5.3 to 6.7 percent following a 27 percent increase in the minimum. Armey explains that during strong growth periods, increases in the minimum wage can precede growth in employment, but that this in spite of -- not because of -- increasing the minimum wage. But even then, some workers will lose their jobs. As Joseph Stiglitz, chairman of President Clinton's Council of Economic Advisers, wrote in his 1992 textbook, "...substantial unemployment is generated with any increase in the minimum wage." Source: Rep. Dick Armey (R-TX) and Rep. Tom Campbell (R-CA) "Unskilled Labor Vs. the Unions," Washington Times, May 22, 1996.
Jeopardizes Benefits	Opponents of an increase in the national minimum wage often overlook how it would affect workers' benefits. But new research indicates that employers will try to offset the costs of any increase by cutting job benefits. In addition to the hourly wage, employers offer employees a range of other benefits -- such as health insurance, on-the-job training, rest periods, flexible working hours and company discounts. Since tfringe benefits have grown over the years -- from just 1.4 percent of total compensation in 1929 to nearly 30 percent today. Because employers tend to trim or eliminate these benefits when minimum wage increases are imposed on them, those workers who do manage to retain their jobs are usually getting no more compensation than before. But there are other reasons as well for opposing the minimum wage: The typical minimum wage earner is not the head of a household supporting a family -- 37 percent are teens and 60 percent are under the age of 24. According to the Bureau of Labor Statistics, another 17 percent are wives -- mostly likely earning a second household income. Most minimum wage earners move up the ladder quickly -- with only 15 percent still working at the minimum three years later. Source: Robert L. Sexton (Pepperdine University) and Dwight R. Lee (University of Georgia), "Benefits and the Minimum Wage," Investor's Business Daily, May 8, 1996.
Hurts Young, Black Workers	The expected increase in the nation's minimum wage will hurt one of the most vulnerable sectors of American society -- black teenage males. According to data from the Bureau of Labor Statistics, joblessness among this group tends to rise and fall in tandem with minimum wage fluctuations. In 1954, when the minimum wage did not apply to most sectors of the economy other than manufacturing, the joblessness rate for black youths was about 14 percent -- about the same as for whites. From 1971 to 1980, during which Congress raised the minimum six times, black family income rose just 3 percent while white income rose 8 percent. During the eight years in which President Reagan refused to raise the minimum, inflation reduced the real minimum by 28 percent, and joblessness among black teen males declined from 38 percent to 32 percent -- the lowest rate since 1973. During the same period, real median income rose 11 percent for black families versus 8 percent for whites. Then in 1990-91, minimum wage hikes pushed the real floor up 16 percent and unemployment among black teen males soared to 42 percent. The jobless rate for black males ages 16 to 19 has new fallen back to 35 percent -- just in time for another hike in the minimum. Raising the minimum wage, opponents contend, eliminates just the sort of jobs that teenagers are likely to get: the first jobs where they learn the skills to earn more. To think that business owners operating on a small margin won't cut hours or jobs to cover the hike in the minimum wage represents the triumph of faith over experience. Source: Editorial, "Easy Compassion," Investor's Business Daily, June 7, 1996.