President Barack Obama and fellow Democrats have asserted the need for a $10.10 per hour minimum wage. But a new study suggests that such an increase could have adverse consequences on the very population such an increase seeks to mobilize.
As part of a study from the Employment Policies Institute, Dr. Joseph Sabia, a professor at San Diego State University, analyzed data from the Census Bureau to examine minimum wage increases in instances where the economy is thriving and in a recession. When examining data from 1990 and 2010 — the last three minimum wage increases — Sabia found that a 10 percent increase in the federal minimum wage has a substantial affect on less-educated young workers, with employment reducing as much as 2.3 percent.
“Minimum wage increases fail to reduce overall poverty rates or to reduce the poverty rates among workers,” Sabia said Thursday at a panel hosted by American Action Forum and the Employment Policies Institute.
President Obama issued an executive order Tuesday to raise the minimum wage for those working under federal contracts to $10.10 per hour, a 40 percent increase from the current level of $7.25 per hour. And a bill introduced by Rep. George Miller (D-Calif.) and Sen. Tom Harkin (D-Iowa) last year would raise the federal minimum wage to the same level. The proposal is one supported by many Democrats who feel that raising the minimum wage would help lessen income inequality and lift many out of poverty.
“Americans are hard working and the productivity has soared, but their paychecks have not kept pace,” House Minority Leader Nancy Pelosi (D-Calif.) said in a speech earlier this month. “Stagnant wages and widening income inequality is hurting families, holding back our economy and eroding the basic American principle of respecting work.”
Pelosi, continued, saying raising the minimum wage to $10.10 an hour would “give a long overdue raise to 28 million hardworking men and women,” create 85,000 new jobs and lift more than 4.5 million Americans out of poverty.
But Sabia’s findings speak to the contrary.
He found that an increase in the federal minimum wage does little to help those living in poverty. As cost for low-skilled labor increases with a minimum wage increase, hours for workers can be cut and jobs lost. Additionally, such an increase raises the price of goods for consumers and could cause companies to look toward technology to take the place of human beings. For example, instead of employing workers as cashiers in a grocery store, businesses may turn to self-checkout lanes instead.
“As one peer-reviewed study has noted,” Sabia said, “the net affects of minimum wage increases look like income redistribution among poor and near-poor households.”
The professor focused specifically on examining how minimum wage increases affect low-income workers during a recession. Such a growth in earnings during a stagnant economy, he said, actually has an adverse effect on employment, as low-skilled workers could become the first to be let go. To the contrary, during a thriving economy, the adverse consequences are smaller.
But Sabia’s conclusions go beyond simply how businesses will be affected by an increase in the minimum wage. While Democrats hope a minimum wage increase will help older Americans, targeting this demographic is false.
“Minimum wage increases are very poorly targeted to households living at or near the poverty line,” he said.
Only 13 percent of those making $7.25 per hour — and likely would be the most impacted by a wage increase to $10.10 — live in poor households. More than 40 percent, Sabia found, live in households with an income more than three times that of the federal poverty line. For a household of two, that threshold is $15,510. The standard profile of a minimum-wage employee, he said, is a young person between the ages of 16 and 25 living in a middle-class household.
President Obama asserted in his 2014 State of the Union that passing the Harkin-Miller bill would “help families” and give “businesses customers with more money to spend.”
“Say yes,” the president urged Congress. “Give America a raise.”
House Republicans’ arguments against a minimum wage increase, however, align with Sabia’s conclusions.
“When it comes to the federal minimum wage, listen, I used to be an employee,” House Speaker John Boehner (R-Ohio) said Tuesday. “When you raise the cost of something, you get less of it, and we know that from increases to the minimum wage in the past that hundreds of thousands of low-income Americans have lost their jobs. And so the very people the president reports to help are the ones who are going to get hurt by this.”
Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, agreed and noted that young Americans would feel the affects of the proposed increase.
“It will hurt the economy because it raises the price of labor. It makes it more expensive, and the people who get hurt with these kinds of moves are the people who need these entry-level jobs,” Ryan said Wednesday on CNBC. “It’s young people. It’s minorities in the inner city. We’re pricing these jobs out of their reach. We’re making it harder for people to come out of not working into the labor force.”
In his annual address, President Obama said raising the minimum wage would be a primary focus of 2014, and he headed to Landham, Md., on Wednesday to continue voicing his support for the increase. Boehner has not announced whether or not the House would take up Miller’s bill.