Minimum Wage Laws Hurt the Poor and Help the Unions

“Liberalism always generates the exact opposite of its stated intent.” – Jim Quinn

It was January of 2007 when the House passes the first minimum wage increase in a decade.  Senate Republicans added a ton of tax breaks to small businesses to the minimum wage increase before passing it in February.

They bickered back and forth for a month or three, then finally attached the bill to a war spending bill and Bush signed it into law.

I was against it, saying first of all it was unConstitutional.  I also said it would cost jobs, because businesses could either raise their prices and hire another person, or they could do without the extra body and keep the prices the same.

President-elect Obama is pledging to squeeze even more out of the business owner by raising the minimum wage again, this time from $7.25 to $9.50.  In the middle of what he sells as the worst economic crisis since money began, he wants to add another burden to the small business community. 

A new book called “Minimum Wages” shows how it will do more harm than good

According to research conducted by an economist at the University of California at Irvine, minimum-wage hikes clearly reduce the employment of those with the fewest skills.

These negative effects are concentrated among the most vulnerable employees.

The study estimates that for every 10 percent minimum wage hike, employment for young black adults and teenagers falls 8.5 percent.

You don’t have to be an economist to see the fallacy of a mandated wage increase: In a recession, a job at the previous minimum wage is much better than no job at a higher rate.

If you are a business owner, and you have to pay someone a wage that you feel is high, are you going to hire someone with no experience, or a teenager with no work ethic?  No, you aren’t.

Are you going to be able to absorb an increase in expenses and still be able to provide goods and services at the same prices?  Maybe, but then you lose the ability to hire more people because the profits you had are now gone.

There are two things a person needs to understand about why Democrats are concerned about the minimum wage increase.  First, it makes the look like the party that cares about the little guy.  They want to help the poor folks who are living on minimum wage be able to have a better life.  Meanwhile, they sell the idea that the evil republicans are against helping the little guy.  They don’t care about them.  They care about big business.

The fact is this:

In 2005, 1.5 percent of all wage and salaried workers received the federal minimum wage or lower.

That amounts to roughly 2 million people. Of that number,
about half are under age 25
less than one-quarter work full time (35 hours or more a week)
three-fifths work in the food service industry, where, according to government reports, tips and commissions often supplement the hourly wages
more than 70 percent are at least high school graduates
two-thirds are women 

The percentage of people who earned the minimum wage or less has dropped from 7.9 percent of all wage and salary workers in 1979 to 1.5 percent of all wage and salary workers in 2005. 

How many of the 1,000,000 minimum wage earners under 25 live at home with their mother and father?  According to the  National Center for Policy Analysis, 40% do.  Here is the Bureau of Labor Statistics Report on miminum wage earners in 2005.  Don’t believe me.  Read it for yourself (but be advised, it is a pdf.)

Also, here’s 50 years of research into the minimum wage.  A few of the things found:

  • The minimum wage reduces employment.
  • The minimum wage reduces employment more among teenagers than adults.
  • The minimum wage reduces employment most among black teenage males.
  • The minimum wage hurts blacks generally.
  • The minimum wage hurts low wage workers.
  • The minimum wage hurts small businesses generally.
  • The minimum wage hurts the poor generally.
  • The minimum wage does little to reduce poverty.

Also, when the President raised the minimum wage, twenty nine states already had mandated wages be higher than the federal governments.  Some cities and counties had done the same.

But that doesn’t make the headlines.  “Democrats Fight for Minimum Wage Increase” is the headline.  Which is one reason they fight for it.

Another reason is that an increase in the minimum wage is the positive effect it has for unions, who are huge contributors to Democratic candidates.  Unions love minimum wage increases.  They campaign in favor for them.  Why?  Most union members aren’t making minimum wage.

Minimum wage increases help union members get jobs:

Researchers have found that this is what happens when the minimum wage rises. Using data from government surveys, economists at the Federal Reserve and the University of California-Irvine examined how past increases in the minimum wage affected the earnings of both low-income and unionized workers.[7]


They found that increasing the minimum wage had few statistically significant effects for unionized workers who earn well above the minimum wage. For example, United Auto Workers members in Detroit who earn $75 an hour do not usually perform work that could be done by any number of unskilled workers. But the minimum wage significantly increases the earnings of union members who compete with low-skilled workers for jobs. The researchers estimated that if the minimum wage were hiked 40 percent, unionized workers who earn between the minimum wage and twice the minimum wage could see their earnings rise between 20 and 40 percent.[8] The evidence shows that a higher minimum wage unambiguously helps union members.


Low-Income Families Lose

Unfortunately, the opposite is true for unskilled non-union workers who earn the minimum wage. The researchers found that raising the minimum wage actually reduces these workers’ earned income. Wages go up, but only for those workers who keep their jobs. In response to the higher minimum wage, employers reduce both the number of minimum-wage workers they hire and the hours of the minimum-wage workers they do employ. The lost hours and jobs mean that, after the minimum wage rises, the average minimum-wage worker earns less.[9] Union members who earn more than the minimum wage benefit at the expense of minimum-wage workers.

This isn’t news.  Milton Friedman taught this years ago:

The campaign for an increased minimum wage has a twofold benefit for the Democratic party.

While they campaign for an increase in the minimum wage, they use class warfare tactics to demonize the Republicans for opposing it.  This turns lower income workers against the Republicans, even though the Democrats are actually hurting the very people they claim to be fighting for. 

At the same time, they are helping one of their biggest sources of campaign cash on the sly.  Unions will continue to fork over cash to the Democrats, helping them win more elections in the future.

For Democrats, this isn’t about helping the little guy.  It’s about helping the unions, the party and themselves.  The little guy gets the short end of the stick.


This was cross-posted at All American Blogger, where you can find other great original articles. While you are there, sign up for our free RSS feed. What is RSS? Find out here.

Share this!

Enjoy reading? Share it with your friends!