Minimum wage, minimal help

Published 10:47 pm Wednesday, September 3, 2014

The ongoing campaign to increase the minimum wage raises numerous issues, some of which I have weighed in on before. One of the most important questions involves whether raising the minimum wage actually helps poor Americans. You might think that this is a no-brainer, but the evidence shows that very few minimum wage earners live in poverty.

Proponents of raising the minimum wage argue that a person working full time should earn enough to not be in poverty. A full time worker with one dependent child earning the current federal and Alabama minimum wage of $7.25 per hour would still be below the official poverty line.

Public policy debates often depend on both peoples’ values and information about how the world works. The exact mix of information versus values differs across policy questions. On the one end of the spectrum, the design of anti-aircraft weapons for the armed forces is probably a pure information issue, as we ultimately care only about which weapons shoot down enemy warplanes best. On the other end is an issue like abortion, which turns almost exclusively on values.

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Economists help provide information on the effects of public policies. Informing the public debate can help bring the different sides more into agreement, or at least highlight the differences in peoples’ values that produce disagreement. We should revise our positions when information tells us that a policy does not live up to our values. But most of us find it difficult to separate our values from policies, and instead tend to dismiss the information as erroneous or biased.

Most proponents of a higher minimum wage, I think, sincerely wish to help poorer Americans. Consequently some of the evidence on the minimum wage accumulated by economists may not change their positions much. Economists David Neumark and William Wascher conclude in their book Minimum Wages that the dozens of papers published on the topic provide overwhelming evidence of job losses. Yet job losses may not deter proponents who value helping working families out of poverty. Some lost jobs may be considered an acceptable price of lifting many families out of poverty.

But those working at the remaining jobs are not usually poor. Economists Joseph Sabia and Richard Burkhauser estimate that only about 11% of workers who would benefit from an increase in the federal minimum wage to $9.50 per hour (as President Obama proposed in 2009) are in households below the poverty line. By contrast, over 40% of beneficiaries reside in households with incomes at least three times greater than the poverty line.

Only pennies out of every dollar a minimum wage increase would cost our economy end up going to poor households. This shouldn’t be a surprise since the minimum wage does not target persons below the poverty line. States recently raising their minimum wages will assist several teenagers from well-to-do households for every poor, working mother.

The proportion of minimum wage earners in poor households has fallen dramatically over time. Economists Sabia and Burkhauser estimate that 85% of low wage earners were in poor households when the federal minimum wage was first introduced in 1939. Arguably the minimum wage, along with various government safety net programs, has already driven Americans with the lowest job skills out of the labor force. Less than 5% of American workers earn the minimum wage. If people can enter the workforce, learn skills on the job, and demonstrate good work habits, they soon earn more than the minimum wage. Yet getting started depends on just how much one can contribute as a new worker. A high school dropout or graduate of one of our nation’s weaker public schools might only have job skills sufficient to earn $4 per hour upon entering the work force. These individuals need low-paying entry level jobs to learn on the job, but the minimum wage shuts them out of the market.

The minimum wage is a poor weapon against poverty. When information shows that policies fail to advance a good cause, we need the courage to admit this and change course.

Americans concerned with the well-being of the poor should seek more effective measures than the minimum wage.


Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. Respond to him at and like the Johnson Center on Facebook.


About Dan Sutter

I am the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University.

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