Minimum Wage Promises, Maximum Wage Problems

“There was this young boy about eleven years old… and he said, ‘You know, my mom makes the minimum wage and even though it went up, her hours were cut. So we’re not making any more money. Can you help her?’” – Hillary Rodham Clinton

It is a sad reality that young children who grow up in poverty have to worry about whether their parents can make ends meet on a regular basis. Instead of focusing on developing friendships, exploring their surroundings, and experiencing extracurricular activities, kids who grow up in poverty are deprived from fully enjoying these activities, and instead, cope with negative household experiences.

Ever since middle school, I was aware of my family’s poor income and lived with that reality throughout high school and college. Poverty has significant negative effects on child development since high levels of adversity heavily stress the brain as it tries to develop. Some kids, like myself, succeed in life despite this adversity, but others remain in poverty for most of their lives.

I call my parents at least once a week to check on things at home. They are low-skilled, low-wage workers. So far their work remains steady, but I worry about the impending increases to California’s state minimum wage that will put their jobs, hours, and government benefits at risk. Work-study students, including myself, will likely see minimum wage boosts from $9 to $10 per hour on January 1, 2016. Those whose parents are from California and are similar to mine risk losing their jobs, in exchange for some students getting paid to sit at the Rains Center or the library and do homework on the clock. Minimum wage increases are not fair for my parents or for the millions of poor citizens trying their best to escape the perpetual cycle of poverty.

Despite the negative effects of minimum wage hikes, many new minimum wage laws were enacted across the country. In Los Angeles (city and county), New York City, Seattle, and the University of California system, employers must pay workers $15 an hour within a couple of years. These raises are mostly seen as a success for working-class Americans holding multiple jobs for a living. Each law is different and affects different demographic make-ups. New York’s increase, for example, only affects fast-food workers, and Los Angeles County’s increase only affects unincorporated areas.

Lack of support in Congress has led minimum wage advocates to support state and local initiatives for minimum wage increases, but many of these changes were accomplished using questionable methods. New York arbitrarily raised fast-food worker wages using an advisory board, while LA City Council held debates for only a few days before pulling the trigger. Input from the business community and other opponents to minimum wage increases was widely ignored. Whether or not one supports minimum wage increases, or minimum wage laws in general, the methods used by cities and support groups to achieve these increases are creative at best and manipulative at worst. Preventing further increases to minimum wage rates is the best way to mitigate its several negative effects.

Most arguments on both sides of the minimum wage debate focus on jobs and potential increases in family income. For instance, the Congressional Budget Office’s report on raising  the minimum wage to $10.10 per hour included an estimated average loss of 500,000 jobs (0.3% of the workforce) and a bigger share of increased income being distributed to families already earning more than the federal poverty level. Advocates’ cries for a $15 minimum wage will more than double the current federal rate of $7.25, meaning the effects of this raise will be drastically worse than those in the report.

Minimum wage hikes increase unemployment because they make labor more expensive relative to other inputs like machines and technology. Expensive inputs reduce profits for firms, which leads to lower productivity, higher unemployment rates, and higher prices. Jobs at these income levels are not meant to be retained for long periods of time, but really should function as the first step toward transitioning to work that requires leadership experience, specialized skills, or higher levels of education. The faster people transition into better work, the tighter the low-wage market becomes. As a result, companies are pushed toward natural wage increases like those that McDonald’s and Wal-Mart enacted earlier this year.

The most destructive and ironic impact of minimum wage legislation is that its negative effects disproportionately affect the people minimum wage advocates claim to help. For example, higher minimum wages do not alleviate poverty for single mothers. It actually reduces employment and hours worked for low-skilled and low-income single mothers. In fact, evidence shows that it fails for almost all groups who work at or near the minimum wage, especially the working poor, minorities, and blacks. Higher prices that result from artificially higher wages function like a value-added tax (very similar to sales tax) that is regressive, meaning a higher burden of the tax is paid by poor people. In the long-run, the costs of a higher minimum wage are evenly spread on all demographics, hurting the poor and minority communities instead of helping them out.

In Seattle, workers are asking for fewer hours in response to higher minimum wages so they can retain their welfare benefits and other forms of government aid. I remember my parents talking about losing our Medi-Cal (California’s Medicaid) coverage if my mom accepted a minimum wage job while my dad claimed unemployment insurance after the recession. Excessive savings in bank accounts would have also disqualified us from Medi-Cal and prevented us from building wealth. Minimum wage increases would exacerbate the flaws in low-income insurance and welfare programs for millions of Americans, which are already serious problems. These negative effects, along with the ones listed above, would run rampant if the federal, state, or local minimum wage was raised to $15 per hour.

Minimum wage work and welfare benefits have their importance, but they are not meant to adequately support a family. During my junior year of high school, both of my parents were either out of work or moving between temporary jobs. My younger brother, older sister, and I lived in a single room; my parents in another; and the master bedroom and garage were rented out to cousins and other family members. We also depended on food stamps in addition to unemployment insurance, Medi-Cal, and other forms of aid during this time. Knowing that you are dependent on someone else to provide you basic necessities is the worst feeling in the world, but it was better than moving back to my parents’ hometown in Mexico. Low-wage work will not get families out of poverty, but it will provide hope and the first building blocks to earning a better standard of living.

Human creativity and ingenuity is the true way out of poverty, and my family has embraced that ever since. Over time, my dad has earned wage increases and better healthcare in response to building his skill set at work. He has also turned his love for music into extra income for my family by playing in a local band. We no longer need to rent out extra rooms, so now my sister has her own room and we enjoy extra space in the garage. My siblings and I have the opportunity to attend college at very low prices because of our low income. Using these opportunities to our advantage will help us build wealth after graduation and help our parents retire comfortably. This is how the American Dream is earned. It will never be obtained from artificial and undeserved government minimum wage increases.

 

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Graphic by Nina Kamath.

4 thoughts on “Minimum Wage Promises, Maximum Wage Problems”

  1. Jose, thanks for sharing your story. I’d invite you take a look at the seminal paper by Alan Krueger and Davd Card studying the effect of minimum wage increases in New Jersey. Of course, one study shouldn’t be sufficient to change your mind, but I think it challenges something that you cite as fact in your argument–that increases in the minimum wage lead to decreases in employment.

    You can find the paper here: http://davidcard.berkeley.edu/papers/njmin-aer.pdf

    Thanks again for sharing your story and hope you find the study as interesting as I did!

    1. While the original Card and Krueger 1994 study is a good starting point to studying minimum wage, by no means does it settle the debate.

      I would recommend reading some more recent papers that take into account the debate between Card and Krueger and Neumark and Wascher, such as:

      Ropponen, Olli (2011). “Reconciling the evidence of Card and Krueger (1994) and Neumark and Wascher (2000)”.

  2. Great article, Jose. I just wanted to mention a few notable statistics that you might find interesting, and that add some context to the minimum wage debate that oft goes missing in on-campus debates and media coverage.

    According to the Bureau of Labor Statistics, those who earn minimum wage are actually found to be mostly young whites working part-time jobs. In 2013, 77% of those earning minimum wage were white, and 50.4% of those earning minimum wage were 16-24 years old.

    Additionally, only around 3.3 million people earned at or below minimum wage in 2013 – “That group represents 4.3% of the nation’s 75.9 million hourly-paid workers and 2.6% of all wage and salary workers. In 1979, when the BLS began regularly studying minimum-wage workers, they represented 13.4% of hourly workers and 7.9% of all wage and salary workers.”

    http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/

  3. It is interesting to read Jose’s take on the value of poverty as a way to build wealth. For instance, he mentions that the typical minimum wage job is naught but a stepping stone to a higher pay category while telling us that his parents continue in that category year after year. What changed for them: increases in welfare benefits including ACA and opportunities for their children. For the most part opportunities provided by the public. For some reason, his arguments fall flat because they depend upon a failure to show a “do it on my own” spirit. Jobs that must be done must be given the same buying power year after year.

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