Increasing the Minimum Wage

New Fallacies and Old Realities

Feb 06 2014

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Public support for increasing the minimum wage is based on a number of widely held beliefs. First, no one who works full-time should live in poverty. Second, the current minimum wage is worth less than in 1968. Third, raising the minimum wage helps millions of poor families and hurts no one. Unfortunately, these popular beliefs are either misleading or wrong.

First, most minimum-wage workers live with a parent, spouse, or relative who is also employed. Those trying to support a family can receive government benefits to supplement their wages. These benefits lift most minimum wage workers above the poverty level.

Second, historical rates of inflation or productivity provide no basis for determining the minimum wage. Wages are determined by the value of the additional products or services businesses can sell through the employment of additional workers. Workers with the least knowledge, skill, and experience add the least value and receive the lowest wages.

Third, most minimum-wage workers are not poor. Most poor people are not minimum-wage workers. Only 16 percent of the last minimum wage increase (2007-2009) went to families living below the poverty level. While some workers got a bigger paycheck, other workers got a pink slip. Job losses offset higher wages, preventing any reduction in poverty.

The financial hardship facing some low-wage workers is real. Their plight deserves the full attention and the best efforts of all serious policymakers. But good intentions are no excuse for bad policy.


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