RSC Primer on Minimum Wage Issue

Via RSC email [Link]:

In light of the House’s and Senate’s passage of a 41% increase in the federal minimum wage increase (H.R. 2), and the likely return of that or related legislation to the House floor in the near future, it might be useful to revisit the arguments that pro-wage-increase forces will assert.

Isn’t it true that the federal minimum wage hasn’t been increased since the last time Democrats controlled both houses of Congress?

 No. Since Republicans won control of Congress in 1994, the federal minimum wage has been raised twice: once in October 1996 (from $4.25 to $4.75) and again in September 1997 (from $4.75 to $5.15).

Doesn’t the federal minimum wage apply only to really large, multibillion-dollar corporations who can afford to pay their employees a little more?

 No. The federal minimum wage applies to employees of businesses that do as little as $500,000 in business a year—and to employees of smaller firms if the employees are engaged in interstate commerce or in the production of goods for commerce (such as employees who work in transportation or communications).

OK, but aren’t most workers exempt from the minimum wage?

 No. It’s true that the federal minimum wage does not apply to all workers. For example, as the Congressional Research Service points out, current law exempts full-time students working part-time in certain industries, youth under age 20 in their first 90 consecutive calendar days of employment, and tipped workers in retail and service industries from the federal minimum wage. But the minimum wage does apply to most hourly workers.

Are states currently undercutting the federal minimum wage?

 No. According to the U.S. Department of Labor, most states have a minimum wage requirement that is higher than the federal minimum wage. Where that is the case, the higher standard prevails. As of January 2007, 29 states plus the District of Columbia and the U.S. Virgin Islands have minimum wages that are higher than the federal minimum wage, whereas 15 states plus Puerto Rico and Guam have minimum wages at the federal level. The remaining states and territories have either no state minimum wage or a state minimum wage below the federal one. http://www.dol.gov/esa/minwage/america.htm

Isn’t the minimum wage a permanent living wage for those who earn it?

 No. The federal minimum wage is overwhelmingly a starting wage. Research by economists at Miami University of Ohio and Florida State University found that minimum wage employees are over five times more likely to be new entrants to the labor force.

Don’t most minimum wage earners receive that wage for years and years?

 No. According to the Coalition for Job Opportunities, 85% of individuals who would be impacted by a minimum wage increase are teens living with their working parents, adults living alone, or second earners. As these employees gain skills, they receive significant raises, with more than 65% receiving a raise within just one year. The median full-time minimum wage employee receives a 14% raise, nearly three times that of all employees.

As the U.S. population grows and more people enter the workforce, doesn’t that mean that more and more people earn the minimum wage each year?

 No. Each year fewer workers earn the federal minimum wage. In 1980, according to the Congressional Research Service, over 15% of hourly paid workers earned the federal minimum wage, while in 2005, only 2.5% of hourly paid workers earned the federal minimum wage.

Since the federal minimum wage hasn’t been raised in ten years, won’t most businesses be able to absorb a wage increase without much of a problem?

 No. Small business groups, such as the National Federation of Independent Business and the National Restaurant Association, have repeatedly asserted that a minimum wage increase of the magnitude in H.R. 2 will yield hundreds of thousands of job losses nationwide. Time and again, business groups assert that quickly-increased labor costs unrelated to business conditions encourage or force employers to fire employees, reduce working hours for existing employees, and/or postpone plans to hire additional employees.

But if only 2.5% of hourly paid workers earn the minimum wage, isn’t it true that raising it wouldn’t threaten that many jobs nationwide?

 No. 2.5% of all hourly workers equals hundreds of thousands of people. Plus, many employers, especially in the restaurant industry (as the National Restaurant Association has argued), are paying above the minimum wage, but not much above the minimum wage. Thus, a fairly steep, 41% increase is not something such employers would easily be able to absorb. Furthermore, the wage increase could also harm non-minimum wage workers by making them seem less affordable. For example, if an employer has one minimum wage employee and one non-minimum wage employee, when in two years the employer has to pay 41% more to the minimum wage employee, he may decide to fire the higher-paid employee and combine the two positions into one.

Isn’t the notion that the minimum wage should be allowed to fade away a backward idea that no one really asserts anymore?

 No. As recently as last month, renowned columnist and TV commentator George Will called for the minimum wage to be zero: http://www.washingtonpost.com/wp-dyn/content/article/2007/01/03/AR2007010301619.html [Link]. Plus, raising the federal minimum wage is opposed by such organizations as the National Restaurant Association, the National Federation of Independent Business, the U.S. Chamber of Commerce, the National Association of Convenience Stores, the American Hotel and Lodging Association, the International Association of Amusement Parks and Attractions, International Foodservice Distributors Association, the National Association of Chain Drug Stores, the National Association of Manufacturers, the National Association of Theater Owners, the National Council of Agricultural Employers, the National Grocers Association, the Small Business & Entrepreneurship Council, and the Society of American Florists. Additionally, the Heritage Foundation released a paper strongly opposing the notion of increasing the minimum wage.

UPDATE: Rep. Sali makes a very interesting argument against the minimum wage here.