E21 Asks: Federal Minimum Wage
Last week, we asked e21 readers about their preferred level of the minimum wage. ”None, it should left to the states” was the overwhelming favorite and received 60 percent of the vote. The next most popular choice was “$7.25, the current rate
,” with 14 percent of the vote, closely followed by “$10.10” which had 13 percent of votes. The option “$5.00” only received 8 percent, and “$15.00” came in last with just 5 percent of votes.
Lately, President Obama has been calling for a $10.10 minimum wage. Raising the minimum wage to this level would be a 39 percent increase. Some worker centers are even calling for a $15 minimum wage—an increase of over 100 percent.
Defenders of these proposals argue raising the minimum wage by such large margins would not negatively affect employment. Some say doing so would even help the economy.
However, if raising the minimum wage were cost-free, why stop at $10 or $15 an hour? Why not go straight to $24 an hour, the average hourly wage?
Obviously, raising the minimum wage to $24 an hour would displace workers. This effect is less obvious when increases are smaller. But when the minimum wage is raised, employers hire higher-skilled people, or invest more in labor-saving technology.
Those who would be harmed by increasing the minimum wage are disproportionately young or low-skilled. Half of minimum-wage workers are under 25 and a quarter are teens. Half of the people earning the minimum wage are working in part-time positions.
Raising the minimum wage would make it even more difficult for young people to find employment. The teen unemployment rate is 21 percent, and the African-American teen unemployment rate is 39 percent. The youth (20-24 year olds) unemployment rate is 12 percent.
Finding the effects of raising the minimum wage is difficult. Ninety-seven percent of American workers earn above the minimum wage. Their wages exceed the minimum not because of law, but because employers value their services and want to pay high wages to retain high-quality workers.
University of California (Irvine) professor David Neumark showed that raising the minimum wage will result in fewer jobs for teens and low-skill workers. One of his recent working papers concludes that “the research record still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”
Twenty-one states and the District of Columbia have a rate above the current federal level. An hourly rate of $10.10 is above Washington State’s level of $9.19 an hour—the highest in the nation.
The cost differentials between geographic locations, such as rural Oklahoma and the District of Columbia, should matter for politicians who want to raise the national minimum. Allowing Oklahoma to have a lower minimum wage than D.C. makes perfect sense. It is 70 percent more expensive to live in D.C.
In order to justify raising the minimum wage, proponents argue 70 percent of families making the minimum wage earn under $60,000. This statistic is neither surprising nor cause for alarm since median household income for 2012 was $51,371. Additionally, James Sherk of The Heritage Foundation calculated from Census data that the average family income of minimum wage workers exceeds $53,000 a year.
The current federal minimum wage level is not at historic lows. The current rate of $7.25 is almost exactly the average from 1960-1980 ($7.30). Even so, what matters is not whether an arbitrary wage threshold is rising or falling but whether low-skill workers can get jobs. Minimum-wage workers are poorer than they used to be, but there are far fewer of them. In 1979, 8 percent of workers made the federal minimum wage, but by 2012, just 3 percent did.
Raising the minimum wage is not cost-free because it would put more low-skill Americans out of work. It is better to have a job at a low wage than no job at all, because the low-wage job can lead to better-paying opportunities.