Raising the Minimum Wage Hurts Its Intended Beneficiaries

March 1, 2013

President Obama has proposed to raise the minimum wage to $9 an hour and index that wage to inflation so it rises every year. A preponderance of evidence suggests this would not produce the president's desired effects and instead harm America's youth, say Diana Furchgott-Roth, a senior fellow with the Manhattan Institute.

  • Sixty-six percent of minimum wage earners worked part-time in 2011.
  • Only 3 percent of hourly wage earners -- 3.8 million people -- earn minimum wage or less and more than half of those workers are under the age of 25.
  • Employed teenagers are seven times more likely earn the minimum wage than workers over age 25.

The federal minimum wage rose to $7.25 in 2009 from its previous level of $5.15. President Obama has stated that full-time 40-hour-per-week workers make $14,500 a year and would benefit from increased wages.

  • Eleven million workers earn between $7.26 and the proposed $9 rate, many of whom would be in danger of losing their jobs, being replaced by automation or outsourcing.
  • The least paid workers in Obama's scenario receive government transfers, such as the Earned Income Tax Credit (EITC) and Supplemental Nutritional Assistance Program (SNAP), which add to the resources available to these individuals and families earning minimum wage.
  • In 2012, a family receiving the EITC and SNAP would receive a benefit equal to an extra $2.62 and $1.67 per hour, respectively, on top of their $7.25 minimum wage for a total of $11.54 per hour.

An increased minimum wage will place additional pressure on employers who must pay their share of Social Security, unemployment insurance and workers' compensation.

  • Teenagers and low-skilled workers had an unemployment rate of more than 23 percent in January of 2012.
  • Raising the minimum wage would crowd out the lowest skilled workers and make it more challenging for our country's youth to begin on the career ladder.
  • European countries, like France with a 27 percent youth unemployment rate and Spain with a 55 percent youth unemployment rate, discourage young people from working.

Source: Dianna Furchtgott-Roth, "Raising the Minimum Wage Is Bad News," MarketWatch, February 22, 2013.

 

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