The great poverty panacea: Obama, Quinn and the minimum wage illusion

January 31 2013

Both Gov. Pat Quinn and President Barack Obama called for an increase in the minimum wage when they made their respective State of the State and State of the Union speeches. They appealed to listeners’ emotions by invoking images of struggling families working full-time, but living in poverty because they can’t support themselves on the minimum wage.

Here’s what Obama said:

“…”today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line … Let’s declare … no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour.””

And Quinn’s quote:

““Nobody in Illinois should work 40 hours a week and live in poverty. That’s a principle as old as the Bible. That’s why, over the next four years, we must raise the minimum wage to at least $10 an hour.””

These comments skew the reality of who earns the minimum wage and its true impact on workers and the economy.

The actual number of employed Americans earning the minimum wage totals just 1.8 million. That’s only 1.25 percent of the employed population and 2.5 percent of all workers paid hourly rates.

And the vast majority of these workers aren’t poor parents, as the president and governor would have you believe. Instead, about 50 percent of all workers earning the minimum wage are teens and young adults under the age of 25. These workers are typically in entry-level jobs, learning valuable workplace skills and earning supplemental income.

The remaining 50 percent of all minimum wage workers are adults. Of these adults, one-fourth work part-time voluntarily and just one-third are full-time, full-year employees.

What most contradicts Obama and Quinn’s pleas for a higher minimum wage is that fewer than 5 percent of all minimum wage workers are poor, full-time working adults with families.

The Quinn and Obama proposals to raise the minimum wage, then, will do little to help families in poverty. But these proposals will reduce the availability of entry-level jobs that teens and young adults need to a get jump-start on a successful life in the workplace.

The minimum wage harms teens most because teenagers are among the least-skilled and least-experienced members of the workforce, so they generally produce less in any given occupation. If the hourly minimum wage were increased to $10, as Quinn proposed, employers would begin laying off workers who can’t produce at least $10 of output an hour. Teens usually are first to go because they have fewer skills and produce less than adults who have more work experience.

As the Institute noted in its recent report on teen unemployment, Illinois teens already face huge challenges. The current economic crisis pushed the unemployment rates for teens to levels exceeding 25 percent. Higher costs of employing them will only make things worse.

The president will visit Chicago on Feb. 15, and on his agenda is violence in Chicago and how it impacts teens. Obama must realize, however, that his proposal to increase the minimum wage will hurt teenagers who want to better themselves through work.

University of California at Irvine economist David Neumark has looked at more than 100 major academic studies on the minimum wage, and he says the White House claim of de minimis job losses “grossly misstates the weight of the evidence.” About 85% of the studies “find a negative employment effect on low-skilled workers.”

Obama and Quinn’s narrative of a higher minimum wage leading to more prosperous workers is an illusion. Increasing the minimum wage will lead to a reduction in employment and increased poverty.

Facts the president and governor didn’t share:

  1. Only 1.8 million workers nationally are paid the federal minimum wage – 1.25 percent of total employed workers.
  1. Teens and young adults age 24 or younger make up 49 percent of minimum wage earners.
  1. Sixty-two percent of minimum wage earners age 24 and younger live in households with incomes two to three times above the poverty level.
  1. Only about 17 percent of the families of minimum wage-earning teens are below the poverty line.
  1. Of the 51 percent of minimum wage earners age 25 and older, 25 percent are voluntarily working part-time.
  1. Only 21 percent of all minimum wage earners are family heads or spouses working full time.
  1. Only 4.7 percent of all minimum wage earners are poor, full-time working adults with families.
  1. Young adults in school make up 32 percent of all minimum wage earners.
  1. Every 10 percent increase in the minimum wage decreases teenage employment by 1 to 3 percent.
  1. Two-thirds of minimum wage employees receive a raise within one year.

 

 

image credit: mtkang / Shutterstock.com

TAGS: living wage, minimum wage, obama, quinn, ted dabrowski