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Another View -- Joseph J. Sabia: The $15 minimum wage is an empty promise to the poor

September 22. 2016 4:04PM

Low skilled workers face a perilous job market. And those pushing for minimum wage increases are making a bad situation worse. Since Jan. 1, seventeen states have raised their minimum wages with several localities going as high as $15 per hour. Hillary Clinton has endorsed the Fight for 15 campaign and Donald Trump supports a $10 minimum wage. Proclaiming support for higher and higher minimum wages has become the latest form of virtue signaling. But a $15 minimum wage spells big trouble for working families and job creators.

Advocates claim that raising the minimum wage will diminish poverty, reduce welfare dependence, and stimulate the economy. But a $15 minimum wage will fail to deliver on all of these promises. In fact, it will harm many vulnerable workers proponents claim to want to help.

A $15 minimum wage has been championed as an anti-poverty measure. But the majority of poor people do not work and will not benefit from a higher minimum wage. According to 2014 Census data, less than 40 percent of poor individuals actually work. The best anti-poverty strategy is one that incentivizes poor people to work, encourages skill accumulation, and promotes private sector job growth. A $15 minimum wage will do just the opposite.

Employers respond to minimum wage increases by laying off workers, cutting hours, and reducing new hires. The best estimates we have from past minimum wage increases, generated by economists David Neumark and William Wascher, suggest that a $15 federal minimum wage would reduce employment of low-skilled individuals by about 10 to 30 percent. African American and Hispanic low-skilled workers will be especially hard hit by a $15 minimum wage.

The job losses from a $15 minimum wage mean that it will not alleviate poverty, but will simply redistribute poverty. While poor workers who keep their jobs may be lifted out of poverty by a $15 minimum wage, other near-poor workers who lose their jobs or have their hours cut will be plunged into poverty. The misery just gets shuffled around.

In a new sales pitch to conservatives, advocates say that a $15 minimum wage will reduce welfare spending by making people less dependent on means-tested program. But research I recently conducted with University of New Hampshire graduate student Thanh Tam Nguyen shows this claim to be largely false. We show that minimum wage increases fail to reduce welfare participation or cut government spending. This is because many welfare recipients do not work, and near-poor workers who lose their jobs because of minimum wage increases are pushed onto the welfare rolls.

If the goal of minimum wage increases is to encourage economic self-sufficiency, it fails spectacularly. Climbing the ladder of economic success requires that there be rungs of the ladder on which to grab. By limiting options for entry-level employment and on-the-job training, minimum wage increases transform that ladder into a sweat-covered gym rope with no knots.

Advocates also claim that by putting more dollars in the hands of poor workers, minimum wage increases will encourage consumer spending, which will spur economic growth. But lower-skilled workers who lose their jobs because of higher minimum wages will have fewer dollars to spend. And firms facing higher labor costs will lose the profits necessary to re-invest and grow or even just stay afloat. Evidence from my recent research shows that higher minimum wages reduce relative gross domestic product generated by low-skilled industries such as manufacturing, wholesale trade, and retail trade.

In addition to the above drawbacks of a $15 minimum wage, my work with Richard Burkhauser at the University of Texas at Austin shows that higher minimum wages are not even well-targeted to poor workers. Estimates from Census data show that just 11 percent of workers that would be affected by a $15 minimum wage are poor. Nearly two-thirds of those affected live in households with incomes over two times the Federal poverty line and 42 percent live in households with incomes over three times the poverty line.

The push for a $15 minimum wage is devoid of a strong evidence base.

That is why policy makers should send the minimum wage to the ash heap of discredited labor policies and promote pro-growth, pro-work policies that will deliver results to the working poor.

Joseph J. Sabia is professor of economics and McKerley Chair of Health Economics at the Peter T. Paul College of Business and Economics at the University of New Hampshire.

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