NCPA - National Center for Policy Analysis


September 14, 2004

Sen. John Kerry's (D-Mass.) proposal to raise the minimum wage from $5.15 to $7 an hour by 2007 would result in more young and unskilled American job-seekers working dead-end jobs that actually pay less than the minimum, says Alan Reynolds of the Cato Institute.

The federal minimum wage does not apply to those working on small farms or at seasonal amusement or recreational establishments. It does not apply to newspaper delivery people, companions for the elderly, outside salesmen, switchboard operators or part-time babysitters.

Such jobs offer a crude safety valve, preventing the full brunt of minimum wage hikes from taking the form of higher unemployment, says Reynolds.

  • After increasing the minimum wage in 1979 and 1981, the percentage of hourly workers earning less than the minimum reached 5.6 percent and 6.8 percent, respectively.
  • After leaving the minimum wage unchanged from 1983-1989 (hence falling in real terms), the share of workers earning less than the minimum fell to 2.2 percent.
  • After raising the minimum wage in 1990, the percentage working for less than minimum rose to 3.8 percent in 1991.
  • After increasing the minimum wage in 1996, the percentage of workers earning less than the minimum jumped from 2.5 percent in 1995 to 4.2 percent in 1997.

A higher minimum wage reduces the number of such jobs that are offered, leaving a larger number of low-wage job-seekers competing for jobs that pay less than the minimum wage. This is turn pushes the lowest wages even further, explains Reynolds.

Whenever the minimum wage is pushed up faster than the market would have moved it, the effect is to greatly increase the proportion of jobs paying less than the minimum, he says.

Source: Alan Reynolds, "When More is Less,", July 15, 2004.


Browse more articles on Economic Issues