Would a Lower or No Minimum Wage Help the Poor?

Over the labor day weekend, I was involved in a spirited debate about whether or not it was good for the poor to lower or eliminate the minimum wage.  It all started after reading an article on PolicyMic called: Teenage Labor Isn’t Worth the Minimum Wage.  The premise of the article is about teenage labor being worth less than the MW and therefore MW policy is bad.

The real fun started in the comment section.  I would encourage everyone to read the article and the comments.  The comments ranged from agreement to attacking unions to disagreement.  Most of the debate was less about the article and more about whether a lower or elimination of the MW was good for the poor.  The arguments for this focused on the MW causing increased unemployment for poor and unskilled workers, because if their skill level was not worth the MW then you won’t get a job. Therefore this bad policy is bad for poor people.  Instead companies should be able to set the market and not have an imposed wage floor.  By paying a lower wage more people can be employed, thus more people are helped.

My argument focused on with no wage floor what separates us from other countries with no floor and families living on pennies a day.  I understand the issue of lower wages can increase employment, but at what cost?  Minimum wage is already not enough to support a family, how can a lower wage be a true benefit.  What good is having everyone employed, but only making $2/hr if they still can’t afford housing, food, clothes, and transportation?  Increasing poverty to increase employment is not a positive gain in my book.  The cost of food and clothes won’t go down, neither will transportation.  The cost of housing could go down, but with lower housing costs comes lower housing standards.

I am interested in what other people think about this.  I know what my friends on PolicyMic think.  While I did not agree with everyone, I respect their thoughts on the issue.  I also think they make some valid points about employment, but I can’t agree with increasing employment while increasing poverty.

Let me know what you think on the issue.

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4 responses to “Would a Lower or No Minimum Wage Help the Poor?

  1. I think your best arguments are to cite research studies that compare states who raise the minimum wage with those who don’t and there’s no relationship with employment, probably because the minimum wage is so low.

    I think there are more efficient policies that help poor families that don’t have the negative consequences the minimum wage does. For example, we could expand the Earned Income Tax Credit, which definitely helped my mom out when I was a kid.

    • To re-iterate your points, Andrew, the minimum wage at its current level has little effect on employment/unemployment. I think one of the major dilemmas of a minimum wage policy is figuring out what it should accomplish. Is it to create a minimum floor as a means of preventing labor exploitation or should it be used to give every working person a “Living Wage?” The current US policy is closer to the former.

      Here’s a link that gives a good explanation of the minimum wage:
      http://www.bls.gov/cps/minwage2009.htm

      “…3.6 million workers with wages at or below the minimum made up 4.9 percent of all hourly-paid workers.”

      So we are talking about a small % of workers, half of which are 25 years old with wages at or below the minimum wage. Raising the minimum wage might push these employees completely out of the labor market, so why risk it?

  2. Hey Michael.

    Yes, I agree with Andrew that the economic data is by no means decided that at OUR CURRENT minimum wage, employment is being negatively impacted, meaning that all the minimum wage is doing is protecting people who lack information and might otherwise agree to take a job for very low, not knowing that prevailing market rates are much higher.

    Also, employment might shift to teenagers, but it might be better to have a smaller group of richer adults who are looking after their children and are enjoying efficiency returns to having a larger income (and have access to credit, etc.) than just spreading all that money to kids who don’t know what to do with it.

    Glad this debate turned out well.

  3. Michael has explained my case against the MW in his post rather well, so I won’t belabor that point. Rather, I thought I’d share a little compendium of peer-reviewed academic works that support my point on the MW issue (they’re sorted by the claims they make about the impact of the MW:

    The minimum wage does little to reduce poverty.
    Bonilla (1992), Brown (1988), Johnson and Browning (1983), Kohen and Gilroy (1981), Parsons (1980), Smith and Vavrichek (1987).

    The minimum wage hurts blacks generally.
    Behrman, Sickles and Taubman (1983); Linneman (1982).

    The minimum wage hurts the poor generally.
    Stigler (1946), Brozen (1962), Cox and Oaxaca (1986), Gordon (1981).

    The minimum wage hurts low wage workers particularly during cyclical downturns.
    Kosters and Welch (1972), Welch (1974).

    The minimum wage reduces employment most among black teenage males.
    Al-Salam, Quester, and Welch (1981), Iden (1980), Mincer (1976), Moore (1971), Ragan (1977), Williams (1977a, 1977b).

    Few workers are permanently stuck at the minimum wage.
    Brozen (1969), Smith and Vavrichek (1992).

    The minimum wage hurts the unskilled.
    Krumm (1981).

    The minimum wage helps upper income families.
    Bell (1981), Datcher and Loury (1981), Johnson and Browning (1981), Kohen and Gilroy (1981)

    The minimum wage leads employers to cut back on fringe benefits.
    McKenzie (1980), Wessels (1980).

    The minimum wage encourages employers to install labor-saving devices.
    Trapani and Moroney (1981).

    The minimum wage hurts low-wage regions, such as the South and rural areas.
    Colberg (1960, 1981), Krumm (1981).

    The minimum wage causes employers to cut back on training.
    Hashimoto (1981, 1982), Leighton and Mincer (1981), Ragan (1981).

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