As part of their “100 hours” agenda, House Democrats plan to raise the minimum wage on Wednesday. In anticipation of their move, National Review Online asked a group of experts “Is raising the minimum wage a bad idea? Or, for p.r. purposes alone, is this an issue Republicans should go along with Speaker Pelosi?” Here’s how they replied.

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Raymond Keating
Raising the minimum wage is a political mirage. 

Politicians certainly love taking credit for increasing the minimum wage.  Fourteen states imposed a higher minimum wage as of January 1, and the new Democrat-led Congress wants to boost the federal minimum wage reportedly by $2.10 an hour.

Why not?  The issue polls well, and unlike an overt tax increase, politicians can perpetuate the illusion that there’s no economic downside.

Common-sense economics, though, shows something quite different.  First, as at least six decades of studies confirm, a higher minimum wage reduces job opportunities for young, low-skilled, inexperienced workers.  Many low-wage jobs disappear, become automated, or are absorbed by other workers. 

Second, labor-intensive small businesses get hit hard.  Consider that a small business with five minimum-wage positions would face more than $21,000 in additional wage costs annually, not counting increases in other related costs, such as payroll and unemployment taxes, and wage demands from other employees looking to stay ahead of the minimum wage. 

For many small firms, a higher minimum wage simply equates to a major tax hike.

Like so much in politics, a higher minimum wage looks appealing, but the economics reveal a harsh reality.

 — Raymond J. Keating is chief economist at the Small Business & Entrepreneurship Council.
 

Alan Reynolds

The minimum wage was last increased to $4.75 in October 1996 and to $5.15 a year later. What happened? The large number of hourly-wage-earners who were working for less than the minimum wage jumped from 2.5 percent (1.7 million) in 1995 to 4.2 percent (3 million) by 1997.

Among the 75.6 million paid by the hour in 2005, a mere 479,000 (0.6 percent) earned the $5.15 minimum wage.   Three times as many — more than 1.4 million (1.9 percent) — earned less than the minimum.  The law has loopholes you can drive a pushcart through . . . or a tractor.

Every increase in the minimum wage since 1979 had the same effect. The minimum wage makes the most attractive entry-level jobs scarcer and allows those employers to become pickier.  The result is to enlarge the pool of least-skilled workers competing for jobs exempt from the law, legally and otherwise, and thereby drive the lowest wages even lower. 

How is a higher minimum wage supposed to help the most disadvantaged workers -– those who are obviously unable to find work even at the current minimum?

Congress and the president know perfectly well that a higher minimum wage is damaging.  Why else would they have to force it on 20 states who don’t want it?  Why else would they have to phase-it in?

 — Alan Reynolds is author of Income and Wealth.


James Sherk
Conservatives should oppose raising the minimum wage because it would harm, not help, low-income workers. Minimum-wage jobs are entry-level positions usually filled by unskilled workers — often teenagers. Their value lies in the skills and experience they provide, not the wages they pay. Job skills such as the ability to take direction from a boss and interact with customers make workers more productive. With these skills, workers earn raises without government intervention: Two-thirds of minimum-wage earners get a raise within a year.

Raising the minimum wage blocks access to entry-level jobs for the very workers who need them most. When the cost of hiring rises, employers are less likely to hire unskilled workers. Given the choice between hiring an unskilled worker for $7.25 an hour or a more experienced worker for the same pay, a business will always hire the more productive worker.

A minimum-wage hike raises the incomes of suburban teenagers but saws off the bottom rung of the career ladder for needy, unskilled workers. And research shows that these workers suffer the effect of a higher minimum wage for a decade or more. It’s just bad policy.

 — James Sherk is Bradley Fellow in Labor Policy  at the Center for Data Analysis at the Heritage Foundation.

Alan D. Viard
Economists have repeatedly explained the flaws of the minimum wage. It impedes the hiring of low-wage workers. It forces employers to boost cash wages, even when workers would prefer health insurance or on-the-job training. Its costs largely fall on consumers of goods made with low-wage labor. It’s not targeted to low-income households. Its purpose can be better achieved through the earned-income tax credit.

 

So, it’s disappointing to see the new Congress poised to hike the minimum wage. For Republicans, though, this is the wrong fight at the wrong time. The harmful impact of the federal minimum wage is limited — it affects only a small part of the labor force and many states have already set higher minimums. And, despite its flaws, it does help some workers. All told, this would be an odd place for Republicans to draw a line in the sand, particularly after yielding on such important matters as the prescription drug benefit and the run-up in discretionary spending. Rather than bucking strong public opinion on this issue, Republicans should keep their powder dry for the bigger battles ahead.

 — Alan D. Viard is resident scholar at the American Enterprise Institute.