- The Washington Times - Tuesday, July 24, 2001

The minimum wage debate will ignite on Capitol Hill in a matter of days. Opponents of the wage hike who point out that the average minimum-wage worker today lives in a household with an annual income of more than $40,000 may win a debate point over the failure of the minimum wage as an anti-poverty tool. But that fact will change few minds. Americans instinctively embrace this New Deal-era policy as a way to help the most hard-pressed.

And so the minimum-wage argument remains gridlocked, objective reasoning canceled out by decently motivated feelings of "fairness."

Admittedly, 11 presidents and 32 Congresses ago, when most minimum-wage earners were officially poor and (using current federal definitions) about half the American population lived in poverty, the mandate may have eased some misery. Today, when nearly seven out of ten minimum wage recipients live with their parents or other relatives (most of whom are teen-agers more concerned with buying CDs and designer duds than the family's bread), it's time to change our thoughts and feelings about this policy.

When Franklin Roosevelt pushed through the first federal minimum wage in 1938, he guaranteed 25 cents per hour (equal to $2.70 today) to skilled laborers mainly engaged in manufacturing. But by 1966, targeting of struggling heads of households was abandoned as the wage came to cover virtually all jobs. Along with universalizing the minimum wage, however, Lyndon Johnson's Great Society did something else: It wove the social safety net popularly called "welfare," ensuring that anyone bumped from the work force following the expanded mandated wage hikes would not starve, freeze or go ragged.

The safety net was vital. Even a 25-cent minimum wage, FDR's labor secretary had reported to Congress, generated reports of workers being laid off and replaced "by more efficient workers." Today, in a suddenly unsteady economy, the proposed minimum hike to $6.50 per hour figures to quicken employers' search for "more efficient workers" just when the welfare safety net is in tatters. The federal welfare reform of 1996 has pushed hundreds of thousands of poorly skilled Americans into the job market as maids, fast-food servers and the like. There, increases in the minimum wage leave them naked against employers' economic calculations.

A 1994 Columbia University study found that most welfare mothers the bulk of those moved off public assistance by welfare reform are ill-educated and unfamiliar with the "culture" of regular work. Who are these mothers' competition for low-rung jobs made more valuable to bosses with every minimum wage increase? Retired adults. Moonlighters. Energetic immigrants. And, above all, easily trainable teen-agers.

Empathy for the working poor is admirable, but put yourself in the place of an employer. Of these competing categories of workers, which would you be least likely to retain and hire?

Economic researchers have answered that question. The University of Wisconsin's Peter Brandon found that higher minimum wages "raise the educational qualifications to that of a high-school graduate." Even college students, Mr. Brandon calculates, "could now find a job sufficiently attractive to compete for it a crowding out effect." Indeed, he found that welfare mothers in states that raised the minimum wage stayed on the dole 44 percent longer.

Even when former welfare recipients get or keep jobs, minimum-wage hikes help them little because of offsetting benefits reductions. A study by Dr. Daniel Shaviro of New York University estimated a teen working full-time for a new minimum wage $1 higher than the old wage took home, over a summer, $444 more. Meanwhile, the adult working beside him her Food Stamps, Medicaid and other subsidies cut netted about $50 more a year.

Just-published research shows similar findings: Richard Vedder and Lowell Gallaway of Ohio University studied U.S. poverty data going back to 1953 and found no important link between minimum-wage hikes and the poverty level not for males or females, not for blacks or whites or Hispanics, not for teens or middle-aged workers or retirees and not for residents of any geographic area.

There was one exception: The hikes actually appear to have worsened the poverty of "the poorest of the poor." That's partly because the minimum wage hikes spur consumer price increases "more regressive than a sales tax," say Stanford University's Thomas MaCurdy and Frank McIntyre. Since only one out of four of the poorest households even have minimum wage earners, three out of four of these poor households would pay the price of a hike without reaping any benefit.

FDR offered prostrate America a New Deal. But today many low-skilled workers are being dealt out of the American dream by outmoded minimum-wage policies. It's time to change the name of the game.


Richard Berman is executive director at the Employment Policies Institute.

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