Sunday, April 20, 2014
By Martin Jones
FREEPORT — A recent Press Herald editorial (“Our View: Low-wage workers should be higher state priority,” Dec. 9) is a signal that the debate over the minimum wage in Maine is likely to heat up again, especially since President Obama has proposed raising it from $7.25 to $10.10, a 39 percent increase, as a way to combat poverty and inequality.
Martin Jones is a financial analyst who writes frequently about public policy issues. He lives in Freeport.
The president’s proposal is misguided. The minimum wage is a well-intended but ineffective and costly way to aid the poor. What it does accomplish is to ensure that many young, less well-educated and less-skilled individuals will remain unemployed and in poverty.
The chief argument for raising the minimum wage is that the current level is not a “living wage” sufficient to support a family. The observation is true, but is also largely irrelevant. The most important things to know about the minimum wage are that not many people receive it, and that most of those who do aren’t poor.
Nationally, only 2.1 percent of hourly workers were paid the minimum wage in 2012. In Maine, the number was even smaller: 0.8 percent. Furthermore, the majority of these individuals are young, part-time workers living in households with incomes well above the poverty level, or they are older individuals whose spouses earn above the minimum wage.
Research by economist Bradley Schiller at the University of Nevada-Reno found that 78 percent of older minimum-wage workers had spouses who earned at least $20,000, and that nearly half of the spouses earned more than $40,000 annually.
This leaves a very small number of individuals who are heads of households and have no other income beyond the minimum wage. How can we best help this small group?
There is almost universal agreement among economists that an expansion of the Earned Income Tax Credit would be a much better way of helping the working poor than raising the minimum wage because the credit is targeted directly at the population that needs the help. Best of all, the effect of the credit is to guarantee a minimum income rather than a minimum wage, and does so without any negative effect on employment.
The clearest picture of the harm the minimum wage does is in the unemployment data. In October, the unemployment rate for white workers was 6.3 percent, but for black workers, it was 13.1 percent.
For young workers, the picture is much worse. For white workers 16 to 19, the unemployment rate was 19.4 percent, and for young black workers, it was 36 percent.
Worse yet, the unemployment data do not include the millions of workers, young and old, who have dropped out of the labor force because they have not been able to find a job.
Anyone who claims that there is no connection between these shameful unemployment numbers and the minimum wage should explain to all the less-educated, less-skilled, unemployed individuals how raising the minimum wage will improve their job prospects.
The minimum wage is a form of price control, and we know that price controls don’t work for long without creating unintended and usually adverse consequences. So why do we continue a policy that does very little to alleviate poverty and so much to impede job creation?
The answer is that the minimum wage has become an emotional issue that trumps decades of economic research, the laws of supply and demand and even common sense.
If we are serious about helping the working poor, we should expand the Earned Income Tax Credit. If we are serious about helping the unemployed poor, we should eliminate the minimum wage.
For those who remain open-minded on this issue, George Mason University economist Don Boudreaux poses this scenario: A young person from a poor family and who has little work experience and few skills, goes into a business and asks for a job. The owner explains that he has no openings for the applicant’s skill level at $7.25 an hour (much less $9 or $10.10).
Undaunted, the young person says, “Look, if you can’t pay me $7.25 an hour, I’ll take $5, and after I prove I’m a good worker, maybe you can pay me more.” The business owner is impressed by the young applicant’s desire to work and says, “Okay, I have a job I can pay $5 an hour for, and if that works out, then we’ll see.”
How many readers will say that the business owner shouldn’t be able to offer a job for what he thinks it’s worth, and how many will say that the job seeker can’t accept it and must remain unemployed? Would you?
— Special to the Press Herald