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Minimum Wage Hikes Increased The Number Of Below-Minimum-Wage Workers

Daily Policy Digest

Minimum Wage

Tuesday, November 13, 2001

Capitol Hill observers predict that any "economic stimulus" package is likely to include a hike in the minimum wage. Republicans are said to favor a $1-an-hour increase, while Democrats are angling for $1.50.

But in a twist, any increase is likely to increase the number of workers who earn less than the minimum. That's because some workers will not be covered by the law.

  • Most employers who do less than half a million dollars worth of business a year are not required to pay the minimum.
  • The minimum does not apply to many workers providing casual day labor in construction, farming or gardening.
  • Some household workers are theoretically covered by the minimum -- but that is hard to enforce.
  • Those who care for homes, gardens, children and the elderly in lower-income areas are paid whatever they can get -- often in cash.
As a result, the last two minimum wage increases in 1997-98 resulted in the percentage of workers earning less than the minimum rising from 2.9 percent in 1996 to 6.2 percent in 1998 -- even as overall unemployment fell from 5.4 percent to 4.5 percent.

When the minimum was raised from $4.25 to $4.75 in 1996, the share of workers earning less than the minimum jumped from 2.9 percent to 4.3 percent. The proportion of blacks working at subminimum skyrocketed from 6 percent in 1995 to 13.9 percent in late 1997. And the proportion of teens working below the minimum rose from 7.2 percent to 19.8.

Source: Alan Reynolds (Cato Institute), "Minimum Sense: A New Wage Law Will Reduce Jobs Available to Poor," Investor's Business Daily, November 13, 2001.

For more on Increasing the Minimum Wage
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