The other day when I expressed my (temporary) ennui about blogging, I said I was tired of posting about things like "why the minimum wage is a terrible anti-poverty program" and getting back one line comments such as "you hate poor people." In looking back at that post, I realize I actually haven't put in one place my reasons why minimum wage increases are a bad way to fight poverty. So here they are:
1. Only a tiny minority of workers make the minimum wage. Something like 5% of hourly workers, and 3% of all workers, are paid minimum wage or less. This number is not quite right for two reasons. One, many states have higher minimum wages than the Federal rate and this analysis by the BLS is done at the Federal rate only. Thus this understates the number of minimum wage workers in those higher minimum wage states. But, these numbers also exclude tips, which about half these workers receive. If one reasonably includes tip income, these numbers are overstated. On balance, if one looks carefully state by state and excludes workers who get tips, the percentage of all workers who make the minimum wage holds around 3%.
Further, about half (53% by the source above) of minimum wage earners are 24 years old and under. These are not the folks activists generally picture when they say "A family cannot live on that wage..." Thus only about 1.5% of all workers are people 25 and older making minimum wage. The target for this "anti-poverty" program is thus truly tiny.
2. Most minimum wage earners are not poor. The vast majority of minimum wage jobs are held as second jobs or held by second earners in a household or by the kids of affluent households (source)
Most of the data I have seen points to about a third of minimum wage jobs held by earners in families below the poverty line. So 2/3 of the increased wages from a minimum wage increase go to non-poor households (it is actually probably more than this given #4 below).
3. Most people in poverty don't make the minimum wage. In fact, the typically hourly income of the poor appears to be around $14 an hour. The problem is not the hourly rate, the problem is the availability of work. The poor are poor because they don't get enough job hours.
4. Minimum wage increases kill unskilled labor hours. You can certainly find Leftish studies that point to niche situations where a minimum wage increase maybe kindof didn't hurt employment. But in general I think most people understand that when you raise the price of something, people will use less of it. In this case, businesses will find ways to hire less unskilled labor as the price of such labor rises with the minimum wage. Even if businesses hire the same number of people after a minimum wage increase, they likely will demand and get more skilled and experienced employees for this money, which likely will leave the poor out in the cold just as much as if the job were eliminated.
If one replaces the words "minimum wage" with "starting wage for new unskilled workers", the problem becomes more obvious.
5. Minimum wage laws ignore substantial non-monetary benefits of entry-level jobs. Many young workers or poor workers with a spotty work record need to build a reliable work history to get better work in the future, just as a young couple must build their credit history with small purchases before they can take out a mortgage. Further, many folks without much experience in the job market are missing critical skills -- by these I am not talking about sophisticated things like CNC machine tool programming. I am referring to prosaic skills you likely take for granted (check your privilege!) such as showing up reliably each day for work, overcoming the typical frictions of working with diverse teammates, and working to achieve management-set goals via a defined process. I wrote a lot more about these here. By defining acceptable compensation of jobs only as dollars of pay rather than to include softer skills and such, these wages disproportionately discriminate against unskilled and inexperienced workers.