Various state legislators and interest groups around the United States are pushing for increases in the minimum wage. In California, for example, even Republican Gov. Arnold Schwarzenegger now advocates raising the state minimum wage from its current $6.75 an hour to $7.75 by July 2007. But when the minimum wage law confronts the law of demand, the law of demand wins every time. And the real losers are the most marginal workers – the ones who will be out of a job.
The concept of a minimum wage seems straightforward: If we believe the wages of some workers are too low, we should pass a law requiring those wages to be higher. What could be simpler? The problem is that increasing the minimum wage may make some people better off, but others will be harmed. Experience proves that the minimum wage hurts more people than it helps.
In the early 20th century, state governments and the District of Columbia set up Workers' Compensation (WC) systems to pay employees' lost income and medical expenses due to job-related accidents.
A desire to relieve suffering can sometimes hurt. Moving an accident victim can worsen his injuries, despite our good intentions. Similarly, a desire to help the unemployed can actually delay their reemployment.
Political support is growing in Congress for another increase in the federal minimum wage. Bills now under consideration would raise the minimum hourly wage by $1, from $5.15 to $6.15, in two steps over the next year and a half. According to the Economic Policy Institute, about 11.8 million workers would be affected by a minimum wage increase. Although many of these are teen-agers and part-timers, almost one million are single mothers.
Congress appears likely to raise the minimum wage again this year, probably from $5.15 per hour to $6.15 over three years. This will be the second minimum wage increase passed by the Republican Congress. The last increase was enacted in 1996, raising the minimum wage from $4.25 to $4.75 on October 1, 1996, and to the present $5.15 per hour on September 1, 1997.
There are two ways to think about the minimum wage. The first – but misleading – is how much workers are going to get paid. The second – and correct – is how much people must be able to earn if they are going to get or keep a job. So the minimum wage, which is sometimes characterized as a "hand up, not a handout" is neither – it is a hurdle that trips up the least skilled.
Both proponents and opponents of a federally mandated increase in the minimum wage are framing the issue in the wrong terms.
With the exception of the Card-Krueger findings, virtually every major study that has ever been done has found significant job losses from an increase in the minimum wage. But even if one accepts the Card-Krueger findings, evidence of other unfavorable effects makes an overwhelming case that the minimum wage should not be raised and that, in fact, abolishing it would do more for those it is intended to help.
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.