Is There a Strong Case for Increasing the Minimum Wage?

December 11, 2013

The case for increasing the minimum wage is not as strong as advocates portray it to be, says Scott Winship, the Walter B. Wriston Fellow at the Manhattan Institute.

Democrats have proposed increasing the minimum wage from $7.25 per hour to $10.10 per hour, on the grounds that such an increase would decrease economic inequality. But the evidence in favor of such an increase is inconsistent and often relies on weak or inaccurate evidence:

  • Economist Arindrajit Dube argues that the federal minimum wage would be $10.60 today if it were at the same level as it was in 1968. However, that calculation uses a cost-of-living adjustment that overstates inflation and has been rejected by the Congressional Budget Office, the Bureau of Labor Statistics and the Census Bureau.
  • Some point to the fact that the minimum wage has dropped to only 37 percent of the average hourly wage of nonsupervisory production workers (down from 46 percent in 1979 and 53 percent in 1968) as proof that the minimum wage needs to be raised. However, this fails to account for the fact that the number of minimum wage workers has fallen. Only 3 percent of workers made the minimum wage in 2011, compared to 8 percent of workers in 1979.
  • Minimum wage workers in 1968 paid higher taxes than minimum wage workers pay today. This is a result of the Earned Income Tax Credit.
  • Most of the workforce -- 70 percent -- is subject to state minimum wages that exceed the federal minimum wage. This was historically not the case.
  • Lastly, many argue that low-wage workers are better educated today than in past times, pointing to the fact that the number of low-wage workers that have gone to college rose from 25 percent to 43 percent between 1979 and 2011. However, this trend took place across the board: the share of all workers attending college rose from 33 percent to 59 percent during that time.

An informed decision on increasing the minimum wage cannot be made without accurate information, writes Winship.

Source: Scott Winship, "How Solid is the Case for Raising the Minimum Wage?" Manhattan Institute, December 3, 2013.

 

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