President Obama has called for an increase in the minimum wage to give poor workers a pay increase.
Here’s why it’s well-intended but misguided:
1. Two-thirds of the adults living in poverty don’t work, so raising the minimum wage does little to help most people in poverty.
2. 50% of the minimum wage workers are less than 25 years old. The unemployment rate among those workers is currently about 15%; for African Americans it’s about 25%. Raising the cost of hiring young workers will increase the unemployment of the least productive workers—those who find it difficult to obtain employment at the prevailing wages.
3. At the same time, studies have shown that raising the minimum wage pulls more affluent and presumably more skillful housewives and part-time students into the workforce who take minimum wage jobs at the expense of poorer less skilled workers, compounding the job losses for the least productive workers.
4. The CBO estimates that a single mother working fulltime at the minimum wage is taxed at a 65% marginal tax rate because those workers lose government benefits as they earn more money.
a. So an increase in the minimum wage does little to alleviate their poverty.
b. To the extent it raises their pay, in effect, it taxes the consumers of fast-food and discount shopping, who skew toward younger and poorer people and families to pay for this increase.
c. The high marginal tax rate largely hands the money back to taxpayers who skew richer by reducing the need for higher taxes to fund government expenditures on poverty.
5. Businesses forced to pay the minimum wage in order to compete successfully with offshore producers will lose work to those competitors.