President Obama wants to raise the minimum wage to $10.10 an hour. “Give America a raise,” he demanded of employers in his State of the Union speech, telling them, “Americans will support you” as their labor costs – and their products’ prices – shoot upward.
The president claimed this was a matter of helping poor families. The numbers, however, show that very few families must get by on minimum wage. Only 2.8% of all workers earned the minimum wage in 2012, according to the federal Bureau of Labor Statistics, and more than half of those were under 25 years old. A quarter were teenagers.
New 2013 Census data from economist Keith Hall at the Mercatus Center shows how most minimum wage workers are far from the heart-wrenching straw man that the president deploys:
“Most are under 25 years old (56 percent).
“Two-thirds are single and never married (66 percent).
“Two-thirds have a high school degree or less (67 percent).
“Nearly three-quarters work less than full time (73 percent).
“(Hall) adds that a majority of those under 25 don’t work (so increasing the minimum wage isn’t likely to help them). In fact those under 25 in America have an employment rate of just 47.4 percent – down from 53.1 percent in 2007. They have an unemployment rate that is twice the national average (13.5 percent – up from 10.5 percent in 2007).”
Those earning the minimum wage mostly aren't poor. Only 23% of them live in poor households, and the average family income of a minimum-wage worker in 2012 was $53,113 (because so many of them are young workers living with their parents). Hall points out that even when you talk about people making more than minimum – those between minimum and $8.50 an hour – more than half live in households earning more than $35,000 a year, and more than 1 million live in households earning more than $100,000 per year.
These aren’t the poor. The poor live in households where work is rare. About two-thirds of poor adults in 2011 did not did during the previous year.
The poor need work. Raising the minimum wage won’t help them secure a job.
Michael Saltsman points this out in Thursday’s Wall Street Journal. Restaurant chains are putting iPad-like tablets at tables to cut down on the number of waitresses and waiters they need. Others are eliminating bus boys. Stores are adding automated checkouts, and McDonald’s has been replacing cashiers with touchscreens in Europe.
Businesses are doing this to save on labor costs: “Profit margins in restaurants range from 3%-6%. They are even more modest at grocery stores, at 1%-2%,” Saltsman writes.
Give America a raise? Raising the minimum will be more like giving beginning workers a pink slip, Saltsman writes:
“ ‘Efficiency’ is the positive public face of these changes. Chris Sullivan —a co-founder of Outback Steakhouse who now works with MenuPad, a tablet-ordering company—explained his product to me this way: ‘It increases productivity, allowing servers to wait on more tables.’ That means tips may increase for some.
“But the flip-side of more efficiency is a 20%-25% drop in the number of waitstaff necessary to run a restaurant. Currently, a worker who earns tips can be paid below minimum wage, allowing tips to make up the difference. But the $10.10 proposal would raise the minimum tip wage to $7.07 from $2.13, a 232% spike. With roughly three million current tipped jobs in the U.S., that could amount to as many as 750,000 fewer entry-level opportunities if implemented widely.”
Two-thirds of poor adults are in need of a job. Meanwhile, just under two-thirds of people who are paid minimum wage earn themselves a raise by their second year. The poor need a job before they can get a raise. The president should stop incentivizing employers to purchase touchscreens instead of hiring those individuals desperately trying to grab the first rung of the ladder to greater opportunity.
An important way the government helps the working poor without eliminating entry-level jobs is through the Earned Income Tax Credit. If the president were truly serious about providing a livable wage, he'd work to reduce or eliminate the 21% rate of "improper payments" that weakens that program.
One more thing: An increase in the minimum wage can negatively affect EITC payments. The more your earn, the more the EITC supplements pay — up to a point, then it phases out. A cruel reality is that for single parents with full-time minimum wage jobs, raising the minimum wage to $10.10 will mean that even if their employers can afford them, their Earned Income Tax Credit will fall more than $500 a year, or more than $700 a year if they have two or more children.