TCS Daily

Wage Against the Machine

By Nico Wirtz - March 29, 2004 12:00 AM

With Wisconsin Gov. Jim Doyle's endorsement of the Minimum Wage Advisory Council's proposal to hike the minimum wage from $5.15 to $6.50, the Badger State may soon see its minimum wage go up by 24 percent. The council, however, only determined the numbers; the hike itself was already a foregone conclusion, when the governor unveiled his "Grow Wisconsin"-agenda last year.

Raising the minimum wage, proponents argue, is mandated by the need to improve the living standards of the working poor. While nobody can seriously dispute the importance of helping low-income families, Doyle and his council are wrong to think that raising the minimum wage could be the ultimate solution.

Supporters of higher minimum wages are misled by old myths which resurface persistently: When thinking of low-wage workers, the notion of a lowest-income family - a single parent with kids, or a single earner in a couple with kids trying to get by on an annual income of less than $10,000, often comes to mind. Reality, however, paints a different picture: U.S. Census Bureau data show that only 8 percent of low-wage workers are single parents on a full-time minimum job; the majority, 53 percent, are students living in households with an average income of $52,893. The problem in low-income families is not low wages, but no wages, as many of these family-members are unemployed.

Another myth claims that raising the minimum wage actually reduces unemployment - a flawed conclusion based on inaccurate research from the mid-1990s. In fact, virtually every relevant economic study on the subject ever since suggests that an increase in the minimum wage results in higher unemployment, specifically hurting low-skilled adults and mothers.

A University of Wisconsin study finds that mothers in states that increase their minimum wage rely on welfare significantly longer than mothers in states with stable rates. Along with the least-skilled workers, these mothers are often crowded out of the job market by well-educated teens and students, as employers hire higher-skilled workers attracted by higher minimum wages.

In order to make up for rising employment costs, employers tend to replace marginal employees with automated services or cut services altogether. As a result of higher minimum wages, low-skilled workers find themselves in a vicious cycle, because they never get the chance to acquire the skills to meet the minimum wage's earnings requirements. As former senator and Democratic presidential candidate George McGovern puts it: "When these jobs disappear, where will young people and those with minimal skills get a start in learning the 'invisible curriculum' we all learn on the job?"

Ultimately, the only way out of poverty is work, which low-skilled adults are less likely find if the minimum wage goes up. Other approaches to fighting poverty, such as transforming the federal EITC into Wage-Based Tax Credits (WBTC) as proposed by the Employment Policies Institute, would be readily available and much better suited to help low-wage families. If the Gov. Doyle wants to "grow Wisconsin" - eradicate poverty and stimulate job growth - he must understand that hiking the minimum wage defeats its purpose.

Nico Wirtz is a Research Fellow with the Friedrich Naumann Foundation.


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