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Guest opinion: The minimum-wage paradox

BY GUEST OPINION | FEBRUARY 04, 2014 5:00 AM

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There is a series of erroneous assumptions that form the minimum-wage argument, many of which President Obama cited in his State of the Union address in which he called for an increase to $10.10. Raising the minimum wage, it’s argued, will make families more mobile and equal in the economy, driving growth as a result.

The president believes it’s an elementary equation with a simple answer: Just pay them more, and everything will be fixed.

On the contrary, the economics of a minimum-wage increase demonstrate that its effectiveness in stimulating mobility is scant, if not harmful to low-wage employment altogether.

Take, for example, a study conducted by the Pew Research Center that set out to determine the demographics of minimum-wage workers. They found through a Bureau of Labor Statistics data analysis that 50.6 percent are ages 16 to 24, 78 percent are white, and 64 percent are part-time workers.

Only 3 percent of workers (around 3.2 million people) earn minimum wage or less. The retail, leisure, and hospitality industries account for 67 percent of minimum-wage jobs — the types of jobs not meant to be lifelong careers.

Already, this does not paint a picture of a struggling family with numerous jobs trying to live the American Dream. It’s us: students working part-time jobs to support our educations and ourselves.

Economists Joseph Sabia of San Diego State University and Richard Burkhauser of Cornell University go deeper. Their study published in the Southern Economic Journal shows that a minimum-wage increase only benefits 11.3 percent of workers in households defined as poor. They also determined that 63.2 percent of workers who would benefit are part of households with incomes at least twice the poverty level; two-thirds of them earn incomes three times the poverty level.

Additional research shows that a minimum-wage increase reduces hiring levels for not just low-wage jobs but all jobs. Economists at Texas A&M found that a 10 percent increase in the minimum wage would result in a 1.36 percent reduction in gross hiring. In an economy where the number of workers in the labor force is at its lowest levels in 35 years, increasing labor costs by 40 percent is not an answer to our problems.

Consequently, the concept of income inequality and immobility in America is not one with merit. A 23-year longitudinal study from the Employment Policies Institute indicates that two-thirds of employees earning minimum wage earn a raise within a year. Data from the Census Bureau show that the middle class is certainly shrinking, but they’re getting richer, not poorer. By the time you turn sixty years old, there’s a 76.8 percent chance that you’ve once earned an income of $100,000, and a 20.6 percent chance that you’ve once earned an income of $250,000.

If this doesn’t represent economic mobility in America, then nothing does.

What’s different about the Republican approach is the desire to use real solutions to fix our problems, not perpetuate the problems to secure a permanent voting class. Marriage is one of the strongest combatants to poverty. Proper education and retraining for a 21st-century workforce will get many back to work. Lowering taxes and eliminating burdensome regulation produces hiring opportunities for businesses and encourages wealth creation.

The ineffectiveness of the minimum wage as an economic equalizer is a well-documented phenomenon that demands more from our leaders, not the trite rehashing of failed promises. Rather than demonize the GOP and refuse to work with Congress, the president should afford the Republicans the opportunity to break the gridlock and get America back to work.

Joe Schueller
University of Iowa College Republicans


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