Cruel To Be Kind

Tuesday's World Events   —   Posted on September 5, 2006

(by Timothy Lamer, WorldMag.com) The suburban teenager who works at a burger joint has something in common with the single mother who buses tables to provide for her children. It’s the same thing they have in common with the middle-class wife who works part-time to help balance the family budget.

They all earn the minimum wage (or at least many of them did when they started their jobs), and they were the focus of congressional debate in recent weeks over a proposal to raise the national minimum wage from $5.15 per hour to $7.25 per hour.

For a coalition of liberal Democrats and moderate Republicans, the issue is a no-brainer. “There’s no state in America where $5.15 an hour meets the basic needs of a working family,” said Sen. Ted Kennedy (D-Mass.). “We have waited far too long to give these hardworking men and women a raise.” Sen. Hillary Clinton (D-N.Y.) called raising the minimum wage “the right thing for hardworking Americans” and compared it to recent pay raises that members of Congress have given themselves: “If Congress can get a raise, we certainly should be able to give a pay raise to working families.”

Such arguments clearly resonate with much of the American public, and House GOP leaders, who initially blocked a bill to hike the minimum wage from coming up for a vote, decided to allow a vote on July 29. It passed overwhelmingly, 230 to 180, but with a catch: The increase in the minimum wage is tied to a reduction in the estate tax that House leaders have been advocating for years. This “poison pill” almost assures that the $7.25 minimum wage will not pass the Senate, where a reduction in the estate tax is unpopular.

The irony is that this could be the best possible outcome for many poor workers. Despite the rhetoric coming from Capitol Hill, many economists have long doubted the effectiveness of minimum wage laws. The problem with using the minimum wage to help the poor, says James Sherk, a policy analyst at the Heritage Foundation, is that “most people getting the minimum wage aren’t poor.”

Only about one-fifth are at or below the poverty line, he points out, with the average family income of a minimum wage worker being about $40,000 per year. A majority are part-time workers, including a lot of college students and suburban teenagers, and they don’t stay at the minimum wage very long: Two out of three receive a pay raise within a year.

A bigger problem is that a hike in the minimum wage, while helping some low-skilled workers, could actually hurt others. The reason: If a worker’s labor isn’t worth the required $7.25 per hour to a particular company, then that company may decide not to hire him. Opponents of a higher minimum wage argue that this effect would keep employers from creating the entry-level jobs that low-skilled workers need to gain a foothold in the employment market and learn skills that will help them command higher wages later.

This could explain why studies, such as one by Ohio University economists Richard Vedder and Lowell Gallaway, show that minimum wage laws have not had much effect on poverty. A better poverty-fighting tool, say opponents of the hike, is the Earned Income Tax Credit. By targeting only poor workers, it directs money to those who need it without the risk of pricing them out of the job market. “If it’s not working,” says Sherk of the minimum wage, “why keep beating the same drum?”

Copyright 2006 WORLD Magazine, August 12, 2006. Reprinted here September 5th with permission from World Magazine. Visit the website at www.WorldMag.com.

Questions

1.  If an employee works 40 hours/week, how much extra money will he earn per year if the minimum wage is raised to $7.25/hour?  In your opinion, is $7.25/hour sufficient?  What do you believe is a fair minimum wage?  Why?

2.  The bill to raise the minimum wage to $7.25/hour passed the House.  Why will it probably not pass in the Senate?

3.  What percent of minimum wage workers are at or below the poverty line?

4.  What groups make up the majority of minimum wage workers, according to Timothy Lamer?

5.  How would raising the national minimum wage hurt some minimum wage workers?

6.  Opponents of a minimum wage hike propose that the Earned Income Tax Credit is a better way to fight poverty.  Read the explanation of the Earned Income Tax Credit.  Do you agree with opponents of the minimum wage hike who say that the Tax Credit would be a better way to fight poverty?  Explain your answer.

7.  With which group of statements below do you agree?  Why?

SUPPORT A LAW RAISING THE NATIONAL MINIMUM WAGE
-a minimum wage increase is likely to have a greater impact on reducing poverty
-living wages increase productivity by reducing turnover and absenteeism
-a minimum wage increase will not result in job loss; there is no evidence of job loss from the last minimum wage increase

OPPOSE A LAW RAISING THE NATIONAL MINIMUM WAGE
-if the minimum wage is raised, one or both of the following will happen: 1) the employer will retain fewer employees and will require those that are retained to produce more, 2) the cost of the final product to consumers will increase.
-the dead-end job is largely a myth. Minimum-wage earners typically receive raises and promotions or find more lucrative work without any governmental help
-wages should be based solely on supply and demand

8.  Ask 2 or 3 adults (parents, grandparents, neighbors) the following questions:

  • Do you have, or have you ever had, a minimum wage job?  Please describe the experience. 
  • Do you support a minimum wage tax increase?  Please explain your answer.

9.  OPTIONAL:  Write to your Senators to express your opinion on this issue.  Be clear, concise and polite.  Senator emails and addresses can be found at Senate.gov.


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Resources

IF YOU WOULD LIKE TO READ FURTHER ON THIS ISSUE, SEE THE FOLLOWING:
-Economic Policy Institute supports a national minimum wage increase. For “Facts at a Glance” click here or for more information click here.
-The Heritage Foundation does not support a national minimum wage increase. For an article from the website, click here, or for more articles, click here.