Minimum wage is a-okay

Sen. John Kerry counts himself among those who have concludedthat millions of low-wage, mostly young or unskilled workersdeserve a raise. A pretty hefty one, too: He’s called for anincrease in the federal minimum wage from $5.15 to $7 per hour.

The sentiments behind this may be admirable, but the economicsare faulty. Compensation for unskilled, low-wage workers tends torise quite rapidly without any government intervention. And anyincrease in the minimum wage would decrease the number of jobsavailable to unskilled workers. Good intentions don’t cut it.Congress should reject a minimum wage hike.

Behind calls for a minimum wage hike lies the assumption thatit’s up to government to increase wages for unskilled andinexperienced workers – that wages will not naturally increase in amarket economy even as these workers gain experience and skills.The supporters of an increased minimum wage tend to see low-wagework as a “dead-end” where promotions, raises and new opportunitiessimply don’t exist. In this worldview, pay increases not ordered bygovernment never occur.

But the dead-end job is largely a myth. Minimum-wage earnerstypically receive raises and promotions or find more lucrative workwithout any governmental help. According to economists William Evenand David Macpherson, in a report for the Employment PolicyInstitute, between 1998 and 2002 typical minimum-wage workers sawtheir wages climb by 10.4 percent within a year of beginning work -and this during a period in which the minimum wage didn’tchange.

Moreover, recent Census data show that only 15 percent ofworkers earning within $1.50 of the minimum wage belong to poorfamilies, while 20 percent belong to families whose total earningsexceed $80,000 per year. The average low-wage worker had a totalfamily income of more than $40,000. Concern for the working poormay motivate many supporters of minimum wage increases, but theworking poor make up only a small portion of those who wouldbenefit from a higher minimum wage.

Nonetheless, minimum-wage jobs play a valuable role in theeconomy, and their value to workers goes beyond the modest monetarycompensation. In many cases these jobs provide a valuableintroduction to the working world for teens and young adults whostill live with their families. Most of these workers will reducetheir hours or leave their jobs as needed for classes and move outof minimum-wage work soon after completing their education. Buteven those who must work full-time at minimum-wage jobs gainexperience and a work record they can parley into raises,promotions or more lucrative jobs.

Nobody wants to work for minimum wage any longer than necessary,but that’s no reason to adopt a policy likely to reduce the numberof low-wage jobs available. And in fact, most economists contendthat increases in the minimum wage lead to at least a modestreduction in job openings available to unskilled and inexperiencedworkers.

Increases in the minimum wage in 1990 and ’91 led to a 12percent decrease in employment opportunities for teens, accordingto calculations based on Bureau of Labor Statistics data. Minimumwage hikes in 1996 and ’97 led to less-dramatic but stillsubstantial decreases in opportunities for teens. But teens aren’tthe only ones who lose out. Minimum wage increases also have beenlinked to increases in welfare caseloads.

So although Sen. Kerry, along with nearly everyone in the UnitedStates, may sympathize with minimum-wage workers, we should resistcalls to raise their wages by government decree. Government can’tforce employers to pay higher wages without making jobs scarcer forunskilled workers. The good news is it doesn’t have to.Compensation for minimum-wage workers will rise naturally alongwith their experience and skills.

All we need to do is stay out of the way.

Paul Kersey is a policy analyst who specializes in labor issuesat The Heritage Foundation.

(c) 2004, The Heritage Foundation

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