Why Raising the Minimum Wage is a Poor Way to Help the Working Poor

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Politicians from Democratic Presidential Candidate John Kerry to Senator Ted Kennedy are pushing to increase the minimum wage to $7.00 an hour. This 36 percent increase in the wage floor will only serve to decrease employment opportunities for entry-level employees—particularly the low-skill employees minimum wage hikes are intended to help. Supporters of these wage increases claim that this increase will help Americans in poverty. In particular, Senator Kerry states that the main beneficiaries will be women, many of whom are primary breadwinners in their family.

This study reveals that the majority of beneficiaries from a minimum wage hike are not in poverty nor are they the primary earner in their family. In fact, according to U.S. government data, employees earning the minimum wage are more likely to live in families earning three times above the poverty line than in poor families. The authors found that the vast majority of families who are living in poverty will not benefit from the proposed increase. Only 15 percent of the benefits from a wage increase to $7.00 an hour would go to families in poverty, 60 percent of the benefits would go to families earning more than twice the poverty line.

The authors also found that the majority of beneficiaries are not the primary earner in their family. While supporters of wage increases often claim that the increase will help sole earners attempting to raise a family on a minimum wage income, (particularly single females), these individuals represent a dramatically small minority of beneficiaries. Only 12.6 percent of beneficiaries from the proposed increase are unmarried women with children. Over 82 percent are either not the highest earner in their family, single adults, or are married without children.

The especially poor targeting of this social program makes it highly inefficient and often ineffective means of combating poverty. The majority of beneficiaries are not families struggling to survive on the minimum wage but rather second earners and teenagers. The effect of a minimum wage is even worse when one considers the well-documented job loss resulting from a hike. The authors cite several studies which show that increasing the minimum wage not only decreases employment but that these employment losses are concentrated on the least-skilled employees in the economy. For example, a 10 percent increase in the minimum wage causes four times more employment loss for employees without a high school diploma and African-American young adults than it does for more educated and non-black employees.