Executive Summary

Introduction: What's Wrong With the Minimum Wage

Why the Minimum Wage Law Causes Unemployment

What Economic Studies Show About the Employment Effects of the Minimum Wage

The Effects of the Minimum Wage on Teenage Employment

The Effects of the Minimum Wage on Minority Employment

Do Increases in the Minimum Wage Reduce Poverty?

Do Minimum Wage Increases Trigger Recessions or Prolong Depressions?

Conclusion

To The Minimum Wage Hotline

---

Executive Summary

President Clinton proposes to increase the hourly minimum wage form $4.25 to $5.15. In support of this proposal, Secretary of Labor Robert Reich claims that an increase in the federally mandated minimum wage would help thousands of workers avoid welfare and poverty. He says that more than one-third of minimum wage earners are their families' sole breadwinners, struggling to get by.

In fact, Secretary Reich grossly overstates both the number of poor people earning the minimum wage and the number of households dependent on a minimum wage worker's income.

• Only 3.7 percent of hourly wage earners are paid the minimum wage and most of those are not poor.
• A majority of minimum wage workers are either young persons living in nonpoor families or a second or third earner in a household - not the primary breadwinner.
• In 1992, only 198,500 of the nation's 4.7 million minimum wage earners were adult householders.
• Only 1.2 percent of all minimum wage workers (about 58,600) were adult heads of households with less than $10,000 of income.

Supporters of a higher minimum wage also frequently imply that a large portion of minimum wage workers are single mothers for whom welfare is an alternative to work. However, this belief is also disproven by the facts.

• Single parents, male and female, make up only 6.5 percent of the minimum wage workforce.
• Only about half of them (155,900) of a total 311,600) work full time. The number of poor people earning the minimum wage is small in part because most poor people of working age are not working.
• Only 9.2 percent of poor people of working age have full-time jobs.
• About 60 percent do not work at all.

Thus the minimum wage increase proposed by President Clinton would do little to reduce poverty. Instead, it would cause real hardship for some low-income Americans, the very people it is designed to help. A large majority of scholarly studies demonstrate that increasing the federal minimum wage causes higher unemployment. Those who suffer are most likely to be teenagers, racial minorities and low-skilled workers.

• Teenage unemployment rose sharply when the minimum wage was increased from $3.35 to $4.25 in 1990 and 1991.
• Furthermore, the extent to which teenage unemployment exceeds that of the whole population tends to increase in direct proportion to increases in the minimum wage.

All the evidence shows that the job-killing impact of the minimum wage is worse for blacks than for whites.

• Prior to the imposition of the minimum wage, the unemployment rates for blacks and whites were very similar.
• Today, however, the unemployment rate for nonwhites is about twice the rate for whites, and changes in the unemployment rate for nonwhites closely parallels changes in the real minimum wage.
• For example, the 1990 and 1991 increases in the minimum wage were accompanied by rising nonwhite unemployment, which reached a peak of 13.1 percent in June 1992.
• The minimum wage reduces on-the-job training opportunities that allow low-skilled, low-income workers to rise up the job ladder out of poverty.

An increase in the minimum wage would also shock the labor market and might trigger a recession, especially since this is a time of economic uncertainty. In the past, increases in the minimum wage have triggered recessions or prolonged depressions. For example:

• Evidence demonstrates a link between minimum wage increases and the recessions of 1990-91 and 1974-75.
• A good case also could be made that both the 1979-80 economic downturn and the recession that began in late 1981 were exacerbated by minimum wage increases, but this link is less obvious because inflation and other factors were involved
• A minimum wage requirement mandated by the National Industrial Recovery Act in 1933 halted an increase in employment, lengthening and deepening the Great Depression.