The Minimum Wage Doesn’t Help, It Hurts

minimum wage cartoon2

Last night during his State of the Union address, President Obama called for raising the federal minimum wage to $9/hour:

“We know our economy’s stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line.

That’s wrong.

Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty — and raise the federal minimum wage to $9 an hour.”

According to information from the Bureau of Labor Statistics, there aren’t many people who are actually making the minimum wage these days. In 2011 there were 112,564,000 Americans working full-time.. Of that number 111,821,000 of them, or 99.4%, were earning more than the minimum wage.

Of the 45 million Americans earning hourly wages and working full-time, 98.3% were earning more than the minimum wage.

Of the 3.9 million teenage workers (ages 16 – 19) earning an hourly wage, 77.2% were earning more than the minimum wage.

There are very few Americans, even among the youngest and least skilled workers, who earn the minimum wage. So how could anyone argue that raising it would help the economy? It won’t. In fact, it would hurt those it was intended to help. The last time the federal government raised the minimum wage unemployment among young and low-skill workers, those most likely to earn the minimum, went up to record levels. Why? Because we inflated the cost of hiring them.

Looking at the states, those with higher minimum wages have higher levels of unemployment for teenagers. That means a higher bar for entering the job market and gaining the skills and experience necessary to move up the career ladder. The minimum wage isn’t a hand-up, it’s a barrier to getting a job for the young and unskilled.

“The minimum wage law is most properly described as a law saying that employers must discriminate against workers who have low skills,” said Nobel Prize-winning economist Milton Friedman. He was right.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • RandyBoBandy

    If only we still had Milton around to put Barack in his place. You also forgot to mention that Milton actually earned his Nobel Prize.

  • Hellboy

    The “One” has no concept of economics….. The reality is that if the minimum wage is raised, then the owner of a business, operating on his margin of profit, then has to raise the cost of the product…. That means that goods and services cost more to the very same person that got the raise, which puts him/her back in the same position before the raise…. And because it affects everyone, all goods and services are affected. Result??? no gains for anyone…. Hell, why not raise the minimum wage to $60,000/year???? Sounds great…. everyone would be out of poverty. But, that Big Mac might end up costing you about $15.00 or $20.00 bucks….. Also, some employers may choose to cut back on staff to avoid raising prices if the minimum wage is increased….more unemployed… Best answer is to forget about raising the minimum wage and let the market seek it’s own level by the 3 D’s, Drive, Determination and Desire….. Capitalism at it’s best…..

    • AV

      Data of this sort have been gathered for many years, by the industrialized OECD nations. Perhaps President Obama does know what he is doing, and maybe it is your simplistic view that is wrong?

      Changing the minimum wage also changes the ratios of job-types, investments in capital, and even job-locations, in a market. It definitely isn’t the linear change that you claim.

      • JoeMN

        Government wage controls do not increase employment or efficiencies.
        Entry level jobs provide much needed work experience.
        Raising the minimum wage kills those opportunities.

        • AV

          There’ll will always be entry-level jobs, as people have to `enter’ the job-market somewhere.

          And, just for comparison:
          + Australia has a 5.4% unemployment rate, and the minimum wage is (USD) $16.50;
          + New Zealand, 6.9%, $10;
          + Canada, 7%, $10 .

          Why do you think that paying people more is bad for the economy? (Since GDP is the total quantity of goods and services traded.)

          P.S. I chose those economies because they didn’t do austerity cuts in 2009, and Australia even enacted its own stimulus, and their economies are fairly similar to the US (but with national healthcare). E.g., NZ is rated even higher than USA in terms of business freedom.

          P.P.S. Perhaps Obama cannot afford to _not_ increase the minimum wage?

          • Craig

            Well, if you want to cherry pick a couple of statistics to support your assertion that higher minimum wage doesn’t adversely affect unemployment, I have an easy one I can cherry pick for you. US unemployment in 2008, 5.8%. Minimum wage was increased in July 2009 to $7.25/hour. Unemployment in years from 2009 to 2012, respectively: 9.3%, 9.6%, 8.9%, and 8.1%. OK, so I’m being absurd, but I don’t think any more absurd than your argument.

            How about this…since you seem to think raising minimum wage will not raise unemployment, let’s try implementing a minimum wage of $100/hour. Since you assert that raising the minimum wage to $9 would be good for the economy, rasing it to $100 would be REALLY good for the economy, right?

          • AV

            The increase in unemployment, due to a minimum wage increase, seems to be a fairly small effect (go check OECD data, if you like).

            But I was surprised to see that unemployment is so low in Australia, even with a tough global economy and such a high minimum wage. Weren’t you?

            P.S. Perhaps raising the minimum wage above GDP/capita would be slightly silly?

          • JoeMN

            As for Australia, it seems those entry level workers are indeed having a tough time

            http://www.smh.com.au/business/young-workers-hit-by-rising-unemployment-20120124-1qevx.html

            From February 2008 to December 2011, the number of jobs held by 15- to
            19-year-olds shrank by 92,200, despite a gain of 623,600 for the whole
            market in that period, according to an analysis of Australian Bureau of
            Statistics data. In December alone, 18,500 teenage jobs were scrapped,
            or about 63 per cent of all jobs lost in the month.
            ___
            Granted, the author goes to great lengths to ignore the role minimum wage plays, but it cannot be denied.

            This policy of Australia is actually leading to an employment bubble as these young people languish and are unable to pick up the skills necessary to attain meaningful employment later on.

          • AV

            Fair point, I agree. There will be losers whenever a govt meddles in a market.

            But on balance, doesn’t that policy seem quite effective? (But to solve the teenage unemployment problem, they might then have to enact another policy, which will cause yet more problems, so they’ll have to enact another policy, …)

          • JoeMN

            There’ll will always be entry-level jobs, as people have to `enter’ the job-market somewhere

            AV

            Yes, in China

            ____

            Why do you think that paying people more is bad for the economy?

            Actually, the vast majority of people’s wages are somewhere north of minimum wage as it is.

            Income mobility means virtually nobody stays at the bottom.
            A mandated minimum wage hinders this mobility by denying some the work experience they desperately need.

          • JoeMN

            PS

            Australia’s public debt to GDP stands at about 21 %

            For comparison, ours just recently spilled over the 100 % marker

            The need for austerity (cutting government) is a little less imperative there.

            One would be surprised at how these low debt levels contribute to a sound currency and private sector investment .

          • AV

            Maybe the reverse is true: govt investment in education and infrastructure is probably needed more now, than any time since the Great Depression.

            Strong growth is needed, because this solves most problems; e.g., it clearly improves the debt to GDP ratio. (Even if it requires more debt in the short term.)

            Regarding fiscal and monetary policy, notice how the neither inflation nor interest-rates have exploded, despite the alarmism in 2008/9?

            P.S. Of President Obama’s ~$850 billion “stimulus,” only about $150 billion went into actual infrastructure. The Republicans fought Obama over all of his spending plans. Instead, shouldn’t they have been making sure it was spent properly? Don’t you think the country would now be better off if it had mostly been spent on capital, education, R&D, …? If debt is going to be accrued, shouldn’t it at least be on stuff that’ll be useful for the future? Republicans used to understand this; e.g., Eisenhower built the interstate system.

          • JoeMN

            “In check” inflation is more a function of government massaging of the numbers than anything else.

            http://www.zerohedge.com/news/2013-01-23/high-price-understated-inflation

            And as soon as any sign of real world economic recovery puts the precious bond market under the microscope, bye bye the dream of negative interest rates.

            http://www.businessweek.com/articles/2012-08-30/the-upside-down-world-of-negative-interest-rates

            The problem with stimulus is exactly as you described.

            Even had all the money been spent on infrastructure, it would not have mattered one bit.

            See, the 850 billion dollar “giveaway” by the government was the result of a previously equal 850 billion dollar “take” from the private sector in the form of taxation, borrowing, and/or printing

            Whether the money went to Obama’s Capitalist cronies, or public sector union cronies wold have made no difference.

            Stimulus sheriff Biden promised that every penny would be accounted for.

            And I have no reason to believe the money was not placed in those hands in which it was INTENDED to go all along.

            So now you claim this time will be different, notwithstanding all that “Republican obstruction”

            Where have I heard that one ?

            Ah, yes

            http://www.wealthwire.com/news/economy/4535

  • http://nofreelunch.areavoices.com/ Kevin Flanagan

    What about all the people who can’t add enough value to a business to justify hiring them at that cost?

  • Craig

    I was irate when I heard this. I have to admit Obama is an evil genius. He knows very well that raising the minimum wage will raise unemployment. But he doesn’t care. This is not about jobs for obama. If Republicans oppose it he will claim they hate the poor and middle class. If the minimum wage increases and unemployment increases, which it will, the people who lose jobs won’t blame Obama because most of them are morons. In fact, by being unemployed they will become dependent on the government and, therefore, will most likely be demo rat voters for life.

  • Dallas

    mYou’re all arguing against every credible report on the minimu wage that’s been issued in the past ten years. Get a Heart

    It’s like the guy who owns the Pizza chain who says the Affordable Care Act will raise the price of his pizzas 12 to 15 cents. Hey, if I can provide health care for someone for 30 cents a month, I’ll happily do it.

    • Craig

      See? This is exactly what I mean. The libs in power issue their talking points, and the mindless drones parrot them. One of the most common and ridiculous talking points is to argue that those of us who oppose legalized theft aren’t compassionate. Take Dallas “Get a heart.” How about you get a brain?

      The problem with minimum wage is that it is a tax on employment. A minimum wage establishes a cost of hiring employees which has no connection with the value generated by that employee.

      Therefore, in response to the increased cost of doing business, employers will be forced to hire fewer employees or cut hours, raise prices. The irony is that this will actually hurt very small businesses (the “little guy” libs claim to support) more than the “evil” big corporations, because the big corporations are more likely to be able to either absorb the cost or move more of their labor overseas.

      In a nutshell, if you raise the cost of something, you get less of it. The irony is that libs seem to understand that this effect works when they use tax policy to encourage or discourage people’s behavior. But the mindless liberal drones (or “low information voters” as per Rush) can’t grasp the fact that the same will hold true when it comes to minimum wage, costs associated with regulatory compliance, Obamacare, and on and on. I actually believe that those in power on the left understand this, but they know that the people hurt by this policy are mostly low-skilled workers who don’t understand basic economics and will vote Democrat anyway.

  • factsarefacts

    Minimum wage jobs are NOT to be kept for a life time. They are to be stepping stones to a better, more lucrative job. (by working harder and education yourself.)

    The American people, along with the President, seemed to have forgotten this major point.

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