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212 IRET Congressional Advisory 1 (2006)

handle is hein.taxfoundation/iretcgadv0209 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies thait will promote growth and efficient operation of the market economy. November 1, 2006 Advisory No. 212 MINIMUM WAGE = MINIMUM EMPLOYMENT On November 7, voters in Arizona, Missouri, Montana, Nevada, and Wyoming will be asked to approve increases in their state minimum wages and to index them to inflation in the future. Some proponents of the minimum wage mean well, but do not recognize the damage it causes. Others know full well what such wage floors do, and manipulate voters' heartstrings to further their own ends. According to the Labor Department, as of 2004, less than 3 percent of hourly wage workers were paid at or below the federal minimum wage of $5.15 an hour; about half of them are under age 25, and about a quarter are teenagers. Less than 2 percent of workers 25 or older get the minimum or less. About 60% of these low-wage workers were in the leisure and hospitality industry, primarily food services and drinking places, where wages are supplemented by tips. Part-time workers were seven times more likely to be at or below the federal minimum wage than full-time workers. Most move up rapidly. In many areas, low-end market wages are well above the federal minimum, and the federal floor has little or no impact. However, many states set higher floors. Wherever a minimum wage is binding, it prices the lowest-skilled, least-educated job seekers out of the market. Job seekers who cannot add value at least equal to the minimum wage are not hired. Current workers whose output barely exceeds the current federal or state minimum face lay-offs whenever the minimum wage is raised. Linking the wage to inflation would lock in the damage. Most job seekers made unemployable by the minimum wage are teenagers from prosperous families just trying to earn a little pocket money, or are older, secondary workers living in households with other breadwinners that are well above the poverty level. They can bear the government- mandated disappointment (although they should not have to). Nonetheless, some minimum wage recipients are people who need work to help support themselves and their families, perhaps with help from food stamps or Medicaid. They are often victims of ineffective school systems, and are desperate for on-the-job training to make up for their lack of skills. Even low paid jobs offer work experience that allows workers either to advance on site or to compete more successfully for jobs elsewhere. The minimum wage closes that road to advancement by making it uneconomical for businesses to hire and train them. Yes, it is awful that some people drop out of school, or graduate without the skills needed to earn more. And yes, we need to improve education in public schools, and to let parents switch their children from failing schools to ones that perform better. Meanwhile, there is no excuse for prohibiting people from trading some of their time at a lower wage for the on-the-job training that could make up for their lack of education. Those who favor the minimum wage should consider in whose footsteps they follow. g~*m S I 66~ 8 Agg

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