I was asked to write a column about the minimum wage for The Free Lance-Star. It appeared in yesterday’s paper, and I thought I’d post it here as well. The column is virtually identical, but I took advantage of the medium to include hyperlinks.
Should we raise the minimum wage?
That depends upon what we are trying to accomplish.
If the goal is to ensure that each person who has a job earns enough to support himself—and possibly a family—on it, then yes we need to raise it. However, we need to realize that any decision to raise the minimum wage will also reduce the number of people employed and adversely impact firms.
Businesses will either have to pass along the increased costs by raising prices or make other adjustments (include closing for firms that are currently operating on the margin). With today’s minimum wage, larger stores still find it more economical to buy self-service check-out scanners than pay a person. If you increase the cost of hiring people with low skills, you increase the incentive to automate these jobs.
If you doubt organizations react to changes in the law, consider one obvious response to the Affordable Care Act, commonly referred to as Obamacare. The law mandates health care coverage for everyone who works at least 30 hours a week at organizations with more than 50 full-time people.
So how did many large organizations—including the State of Virginia–react to this law? They no longer allow their part-time workers to work 30 hours a week (Click here for a list). So these folks still don’t have coverage but now either earn less or have to juggle multiple part-time jobs to make ends meet.
The other factor to consider is that minimum wage is mostly paid for jobs requiring little skill. However, the experience gained by working these jobs is crucial toward preparing people for future jobs that require more skills and education. For example, when I was 12, my first job paid below minimum wage—I had a bicycle paper route for an afternoon paper and was paid for each paper I delivered. Newspaper delivery people are among the many exceptions to the federal minimum wage law.
While I didn’t realize it at the time, being a paperboy taught me several key lessons. I learned to be responsible and to manage my time. It didn’t matter if I wanted to play when came home from school, I had to deliver the papers on time or people would complain and I’d be fired.
In addition to the job requirements (mostly fold the papers and deliver to each subscriber’s house by 5 p.m.), spending time working also forced me to be more efficient with my other time. By the time I finished my route, cleaned up, and had supper with my family it was about 6:30 p.m. before I could start on my homework. My parents were supportive of my having a paper route, but they made it clear if my grades suffered, I would have to quit.
I also learned firsthand about taxes—my reaction was similar to that of Rachel from the TV show Friends when she got her first job, “Who is this FICA guy and why is he getting all my money?” Despite Uncle Sam taking his share, I learned the relationship between working hard and having money to spend.
Shortly after I turned 14—the minimum age to work for most jobs outside of school hours—I found a job at a local bookstore and quit my paper route. I could work full-time in the summers and part-time during the school year. I made the minimum wage of $3.35 per hour. Considering inflation, it was similar to today’s minimum wage of $7.25 per hour.
Minimum wage jobs are more than sufficient for entry-level jobs, if the person being trained has someone else paying their living expenses. Since my parents paid for my necessities, $3.35 per hour—even after taxes—was more than sufficient for me to pay my own personal expenses and save money for college. The skills I learned from these low-skill entry-level jobs helped me progress to better paying jobs that required more skill, experience, and education.
The current minimum wage is not sufficient as a living wage, but is more than sufficient as a training wage. I agree with the goal of ensuring all families have the necessities to thrive, not just survive, but this may be better handled by reforming our social safety nets which drastically penalize people if they work. Raising the minimum wage will make it even more difficult for people to find their first job where they can learn key skills that will help prepare them for more challenging and better paying future jobs.
This is not just my opinion. In one of the most comprehensive reviews—if not the comprehensive review—of minimum wage studies, David Neumark and William Wascher (Minimum Wages, 2008) found three key findings.
First, increases in the minimum wage decreased the number of jobs for those currently earning minimum wage and for those trying to enter the job market. Second, increases in the minimum wage do not reduce the percentages of families near or below the poverty line (although several studies have found that it increases these percentages given the loss of low-skill jobs). Third, researchers found that when the minimum wage was increased, the motivation for those with low-paying jobs to continue with their education decreased, thus reducing their long-term opportunities for obtaining better jobs.
These clear consistent findings—replicated at different times by different researchers—make a strong argument for eliminating the minimum wage entirely. Raising the minimum wage will decrease the number of entry-level jobs available for those wanting to enter the workforce, will not help (and may harm) poor families as a group, and will reduce the likelihood of those with low-skill jobs going back to school.