The mythology of minimum wage is being exploited by the unions and proponents of a “living wage” as just another feel good campaign by the government controlocrats. Ben Gitis of the American Action Forum has put together an informative piece that debunks the Minimum Wage Mythology.
During the Great Depression, in response to reports of inhumane child labor in the manufacturing sector, the minimum wage was created 75 years ago. Today, the minimum wage is mistakenly called upon to fight poverty and income inequality. As the Democrats, including the President, call on congress to increase the federal minimum wage to as much as $10.10, it is important to understand the Urban Myths about minimum wage. But first, a brief history about minimum wage will provide a foundation.
The minimum wage was first introduced by the Fair Labor Standards Act of 1938 (FLSA) and was primarily intended to protect factory workers, particularly children, from harsh working conditions and low pay. Many children at that time were working 60 hours per week at $4.00 per week. That is $1.14 per hour in today’s dollars. In addition to a minimum wage, the FLSA imposed a maximum work week for production workers.
Minimum wages were required by states long before the Federal government got involved:
• The first minimum wage law (voluntary) in the United States was passed by Massachusetts in 1912.
• Oregon, in 1914, required employers in the state to pay women at least $8.25 per week.
• 19 states and the District of Columbia have higher minimum wages than the federal government.
Myth: Minimum wage combats poverty
Minimum wages have never been intended to combat poverty or provide a “living wage,” although that is the perception presented by supporters of an increase.
Minimum wage assists very few families below the poverty level today. In 2011, only 0.3 percent of people in families below the poverty level worked a job that paid below the minimum wage. Clearly, the minimum wage does not help people who actually have a job.
Myth: Minimum wage combats income inequality
Data reveals a disproportionate number of people who earn minimum wage are teenagers in families that have incomes well above the national average. Teenagers living with their parents represented 36.6% of those who worked at or below the federal minimum wage. These families in 2011 had average incomes of $103,964, which is well above the national average income of $75,203.78. It appears that an increase in the minimum wage may actually enlarge the income gap by limiting earnings from those who need them the most (the jobless) and directing them to those who need it least.
Myth: Minimum wage helps poverty and fights joblessness
CPS data reveals that in 2011, only 6.6 percent of people with a job were in families with incomes below federal poverty levels. However, 27.5 percent of those who were unemployed were also in poverty.
There is mounting evidence in academia that the minimum wage ultimately decreases employment. Neumark and Wascher (2006) performed an extensive literature review of over 100 academic papers published since 1990. Although the papers they reviewed have a wide range of estimates, the authors find that almost two-thirds conclude that minimum wage has a negative effect on employment.
The ongoing debate regarding the effect of a minimum wage on the level of employment continues. New research by Meer and West (2013) suggests that a negative impact of the minimum wage can be isolated by focusing on employment dynamics. Specifically, they find that a 10 percent increase in the real minimum wage is associated with a 0.53 percentage point decrease in the net job growth rate.
American Action Forum applied the work done by Meer and West to current proposals to raise the minimum wage to $9.00 or $10.00 per hour would actually cost the nation 1.4 to 2.3 million jobs respectively.
Like the Constitution, the 1938 the Fair Labor Standards Act (FLSA) has been hijacked and modified for politically motivated control purposes. The minimum wage was never intended as a tool to fight poverty; while it assists very few in need, it increases income and poverty and income inequity by taking jobs from those without a job.
As suggested by Mr. Gitis, “instead of increasing the minimum wage, lawmakers should focus on further improving policy tools, such as the earned income tax credit (EITC). In 2011, while 16.1 percent of all people in poverty received the EITC, only 0.3 percent earned less than the minimum wage. Even more drastic, 56.1 percent of all employed persons in poverty received the EITC, compared to the 6.3 percent earning minimum wage.”