Wyoming Liberty Group

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Minimum Wage, Maximum Cost

Recent discussion in our nation’s capital has focused on raising the minimum wage, and any discussion of the minimum wage is accompanied by significant debates by supporters and detractors. Whether or not you support an increase in the minimum wage, it’s important to recognize that there are undeniable facts that are frequently left out of the debate.

First, retirees do not benefit from increasing the minimum wage—whether they are drawing a pension or living off investments, raising the minimum wage has no effect on retirees’ income. Second, almost all workers who earn at or below minimum wage are part time workers—only 30.6% of all minimum wage workers over the age of 16 work 35 hours or more. Finally, very few workers actually earn minimum wage, and those who do are mostly young.

In fact, only 4.7% of all hourly employees earned at or less than the federal minimum wage and, of them, 50.6 percent were 16-24 years of age in 2012 (the most recent year for which data is available). That means roughly 2.3% of all hourly employees being paid at or below minimum wage were age 25 or older. Since hourly wage earners represent 59 percent of our total work force, this means that only 1.4 percent of all workers are over the age of 25 and earning at or below the minimum wage. This is important because people under 25 are new to the workforce and cannot be considered doomed to low earnings—this demographic includes college students.

Even this 1.4 percent does not represent the total number of people dependent upon a minimum wage to support themselves, nor does it account for other subsidies these people receive. Over 44 percent of workers over 25 earning at or below minimum wage are married with their spouse present. This leaves us with 0.8 percent of all workers who are actually primary household wage earners over the age of 25 earning at or below the minimum wage. This translates to roughly 971,000 workers over the age of 25.

Interestingly, although they are taxed, tips are not added to a person’s hourly wages to determine if they are actually earning more than the federal minimum wage in the official data. 51.2% of minimum wage earners work in leisure and hospitality—many, if not most, of whom receive tips in addition to their hourly wage. If BLS were to track earnings rather than hourly wages, the number would be significantly less than 971,000. Due to this lack of information, we are stuck with the inflated number of 971,000. 

These 971,000 people, or 0.3 percent of the population, are the people that we are told minimum wage increases focus on. With that number in mind, the potential loss of 500,000 jobs becomes immensely more significant.

None of these calculations take into account whether the person is only temporarily working for minimum wage, or reentering the workforce after dealing with substance abuse or legal problems. For these people, minimum wage work is simply a transitional phase.

Which jobs would be lost because of a minimum wage increase? Certainly they would not be highly compensated, salaried workers. They would also not all be full time minimum wage jobs, either. Some would be second income earners, some would be young students, and some would be primary earners. If we apply the 30.6% figure, approximately 153,000 of the jobs lost to a minimum wage increase would be primary earners. That means roughly 16% of the people a minimum wage increase is supposed to help would be expected to be put out of work as a result of the increase.

Yet this does not begin to address the impact on elderly people on a fixed income. In order to help 0.3 percent of the population—plus another 1.1 percent that includes students, second income earners, and young people just starting to work—raising the minimum wage would necessarily increase the cost of goods and services. For the 13.7 percent, or roughly 43,000,000 people, over the age of 65 these increases cut into their fixed incomes. 

Like Obamacare’s Medicare cuts, raising the minimum wage is intended to help the young at the expense of our elderly. Raising the minimum wage sacrifices those who have worked their whole lives to enjoy retirement as best they can – largely for the sake of those who are not supporting themselves.

The discussion so far refers solely to whether the stated intentions of an increase will be achieved. The actual effects are quite different.

Federal minimum wage laws for select workers began in 1938, with the current, generally applicable minimum wage beginning in 1978. Despite the often-stated intent of reducing poverty, the percent of the population in poverty increased from 13 percent to 15 percent over the period from 1980-2012. This same period saw nine increases in the minimum wage.

In response, some claim that the minimum wage has not kept up with inflation (apparently this ignores the impact minimum wage increases have on inflation). This claim does not hold up to modest scrutiny. Using the Consumer Price Index, the 1938 federal minimum wage of $0.25 would translate to a wage of $4.14 today. The current minimum wage is a cost-adjusted 175% of the original minimum wage. So, while the minimum wage does decrease in purchasing power over time it has been increased frequently enough to outpace inflation.

However, even if the minimum wage had not outpaced inflation over the last 76 years, would that be justification for raising it? Raising the minimum wage would likely send 16% of those most in need of their wages to unemployment. Raising the minimum wage will also negatively impact 100% of those with fixed income. The minimum wage has proven to have no discernable impact on poverty, while those who benefit the most are young, part-time workers who are dependent upon someone else.

The only true winner in a minimum wage increase is the federal government. As total wages earned increase, since many who earn more than minimum wage would also see an increase in pay, the total taxable income increases—meaning an increase in tax collections. Whatever gains may be realized by increasing the minimum wage are certainly offset by the negative impacts.

Wyoming Liberty Group and Republic Free Choice Sub...
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Monday, 25 September 2017
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