The Purpose of This Bl;og

By and large, liberals are very decent, kind, and compassionate people who genuinely want what is best. This should be kept in mind as we explore the Law of Unintended Negative Consequences near invariably resulting from Leftist big-hearted solutions to societal problems.

Sunday, January 12, 2014

Minimum Wage - Poverty

The main selling point over the years for increasing the minimum wage was that it would supposedly reduce poverty. (See HERE and HERE and HERE and HERE and HERE)

The argument is made, each time, that the current minimum wage isn't sufficient for people to live on, and is well below the poverty level, not "family friendly," and needs to be raised so that the poor can better survive. (See HERE)

When Obama ran for the presidency in 2008, he said: "“because no one who works full-time in America should have to live in poverty, I will keep making the case that we need to raise a minimum wage that in real terms is lower than it was when Ronald Reagan took office.“ (See HERE)

According to the NY Times: "In his State of the Union address in February [2013], President Obama made raising the federal minimum wage his banner economic proposal. The White House argued that increasing the wage to $9 an hour from its current $7.25 and indexing it to inflation would lift hundreds of thousands of families above the poverty line." (See HERE) "Today, a single parent earning minimum wage takes home $15,080 a year. That’s $3,400 below the federal poverty line for a family of three. That’s the wealthiest nation on Earth, no one who works full-time should have to live in poverty.” (Quoted HERE)

As recently as Dec. 4th, 2013. President Obama has said: "We know that there are airport workers, and fast-food workers, and nurse assistants, and retail salespeople who work their tails off and are still living at or barely above poverty. And that's why it's well past the time to raise a minimum wage that in real terms right now is below where it was when Harry Truman was in office." (Quoted HERE)

The national minimum wage is currently $7.25 an hour (see HERE), which amounts to about $14,500 annually (assuming a 40 hour work week and 50 weeks a year), whereas the poverty threshold for a family of four, is $23,500. (See HERE)

Who wouldn't want thousands if not millions of people brought above the poverty level?

And, as popular as this appeal is among Americans (see HERE and HERE), it is important to put the issue into proper perspective. Tom Woods, senior fellow of the Ludwig von Mises Institute, has said: "Almost all full-time workers (99.4%) are earning more than the minimum wage, and almost all full-time hourly workers (98.3%) are earning more than the minimum wage. Most importantly, the fact that more than three out of four teenagers (77.2%), who are the least skilled and least educated group of workers, earned more than the minimum wage in 2011 would suggest the minimum wage is mostly an entry-level wage for beginning workers with no skills. The reality of the labor market is that even a large majority of previously unskilled teenage workers are earning more than the minimum wage as soon as they acquire minimal jobs skills and work habits, and can demonstrate their value to employers." (See HERE)

Furthermore, "Minimum-wage workers under 25 are typically not their family’s sole breadwinners. Rather, they tend to live in middle-class households that do not rely on their earnings—their average family income exceeds $65,000 a year. Generally, they have not finished their schooling and are working part-time jobs. Over three-fifths of them (62 percent) are currently enrolled in school. Only 22 percent live at or below the poverty line, while two-thirds live in families with incomes exceeding 150 percent of the poverty line. These workers represent the largest group that would benefit directly from a higher minimum wage, provided they kept or could find a job....Adults who earn the minimum wage are less likely to live in middle- and upper-income families. Nonetheless, three-fourths of older workers earning the minimum wage live above the poverty line. They have an average family income of $42,500 a year, well above the poverty line of $23,050 per year for a family of four. Most (54 percent) of them choose to work part time, and two-fifths are married." (See HERE)

Even still, there is a significant number of minimum wage bread-winners living below the poverty level. As such, the serious question becomes: "Does the minimum wage, or raising the minimum wage, bring people out of poverty as intended?" "Does raising the minimum wage help the poor and make them better off?

As indicated in the previous post on Income Inequality, minimum wage laws have been around in the U.S. since 1912, and federally they have gone from less than $1 an hour (prior to 1960), to the current level of $7.25 an hour. (See HERE)

Here, again, is a graph of minimum wage increases posted at Wikipedia. (ibid)

Notice that in nominal dollars the minimum wage has steadily climbed over the years.

Now, if raising the minimum wage actually reduced poverty, then we can expect that the graph for poverty in the U.S. would show a steady decline from the 1940's until the present.

Here are two graphs posted a Wikipedia showing poverty levels from 1959 to 2011.

As may be seen, poverty levels declined during the 60's and early 70's when increases in minimum wage were relatively nominal. However, since then the number of people in poverty has climbed while minimum wage increases were the most substantial.

Since the last increase in minimum wage in July of 2009 (see HERE), the poverty level has steadily risen, and is poised to rise to its highest level since the 60's. (See HERE)

In other words, the leftist LUNC here is that the main selling point for raising the minimum wage, is a myth. For the most part, and particularly in the last half century, raising the minimum wage hasn't reduced poverty levels as intended, but has seen poverty increase contrary to what was claimed. (See HERE and HERE and HERE and HERE and HERE and HERE and HERE and HERE and HERE)

There are various explanations for why raising the minimum wage doesn't work, or works the opposite from what is intended and claimed. For example, a Heritage Foundation report indicated:
"Minimum wage positions are typically learning wage positions—they enable workers to gain the skills necessary to become more productive on the job. As workers become more productive they command higher pay and move up their career ladder. Two-thirds of minimum wage workers earn a raise within a year. Raising the minimum wage makes such entry-level positions less available, in effect sawing off the bottom rung of many workers’ career ladders. This hurts these workers’ career prospects.

"Even if minimum wage workers do not lose their job, the overlapping and uncoordinated design of U.S. welfare programs prevents those in need from benefitting from higher wages. As their income rises they lose federal tax credits and assistance. These benefit losses offset most of the wage increase. A single mother with one child faces an effective marginal tax rate of 91 percent when her pay rises from $7.25 to $10.10 an hour. Studies also find higher minimum wages do not reduce poverty rates. Despite the best of intentions, the minimum wage has proved an ineffective—and often counterproductive—policy in the war on poverty. (See HERE)
In short, raising the minimum wage so as to reduce poverty, is somewhat illusory or a wash given the subsequent reduction in hours, reduced corporate benefits, and reduction in various means-tested government programs for the poor. What some minimum wage workers may gain from the rise in minimum wage, they will lose in entitlements. This may be good in terms of decreased cost to the government--which the country can certainly use right now given the annual deficits, but it is of little net value to the poor. (See HERE and HERE and HERE and HERE)

[Update 7/26/15: Seattle Sees Fallout from $15 Minimum Wage as Other Cities Follow Suit and Seattle Raises Minimum Wage, Workers Demand FEWER HOURS to Keep Their Welfare.Benefits]

For an explanation as to why these Leftist LUNCs may occur, please see: Gov: Wrong Tool for the Right Job - Introduction and Cold Nanny as well as The Politics of Compassion, Emotions, Ignorance, Denial, Blame-Shifting, and Victimization

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