Debate Over Minimum Wage Hike Is Obscured By Myths

Article by DAVID R. HENDERSON, Investor's Business Daily, 1-10-14. Henderson is a research fellow with the Hoover Institution at Stanford University and conducted this analysis for the National Center for Policy Analysis. Excerpts:

"Most workers earning at or close to the minimum wage are not the sole earners in a household, and most of them are not in poor households.

For those two reasons, raising the minimum wage is not a targeted way to help poor people."

"In an article in the Southern Economic Journal, Sabia and Burkhauser report that they "find no evidence that minimum wage increases between 2003 and 2007 lowered state poverty rates."

Moreover, they calculated the effects of a proposed increase in the federal minimum wage to $9.50 on workers then earning $5.70 (or 15 cents less than the minimum wage in March 2008).

They concluded that increasing the minimum wage from $7.25 to $9.50 per hour "will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour."

Specifically, they found that if the federal minimum wage were increased to $9.50:

• Only 11.3% of workers who would gain from the increase live in households officially defined as poor.

• A whopping 63.2% of workers who would gain were second, or even third, earners living in households with incomes equal to twice the poverty line or more."

"When they take this job-loss effect into account, Sabia and Burkhauser conclude that an increase in the minimum wage will be even less effective at reducing poverty.

A low-end estimate of the reduction in jobs due to an increase in the minimum wage is that a 10% increase would reduce the number of low-wage jobs by only 1%.

But even in this best case, they found that an increase to $9.50 per hour would destroy 468,000 jobs."

"to the extent they are able, employers will offset the higher minimum wage by reducing non-money components of worker compensation.

Such an effect will not show up in the government's data because the data on incomes don't measure those non-money parts of the compensation package."