Memo: Minimum Wage Increase: Old, Honorable & Fundamentally Flawed

($22 is what Elizabeth Warren thinks it should be. – promoted by Rob “EaBo Clipper” Eno)

Senator Warren’s comments at an Education, Labor and Pensions Committee hearing, suggesting raising the minimum wage to $22 an hour has generated a lot of online discussion for the merits of increasing the minimum wage. Massachusetts Fiscal Alliance published a memo on this subject. You may read it here on RedMassGroup.com or on our website at MassFiscal.org/Memos

Massachusetts is one of 18 states that has a higher state minimum wage rate ($8 per hour), than the Federal law of $7.25 per hour.  23 states have a minimum wage rate the same as the Federal rate. The boarder states of New York and New Hampshire have lower rates than Massachusetts.  

President Obama has brought attention to the minimum wage debate once again by calling for rates to be set at $9 per hour by the end of 2015. Some Massachusetts lawmakers have proposed increasing the rate to $10 now and $11 in three years.  Massachusetts Treasurer, Steven Grossman, described the state minimum wage hike to $10 an hour as “thoughtful and sensitive.”  Yesterday, it was reported that Massachusetts Senator Elizabeth Warren suggested at an Education, Labor and Pensions Committee hearing, raising the minimum wage to $22 an hour.

The debate over raising the rates for the minimum wage continues to draw emotion and proponents see the issues as a matter of fairness. In contrast to some perceptions, a majority of minimum wage workers are teenagers entering the workforce, and not adults trying to raise a family. According to the Bureau of Labor Statistics (BLS,) 21% of hourly employed teenagers earn minimum wage or less compared with about 3% of workers age 25 and over.  Of this small percentage of adults earning minimum wage or less, 94% also have a spouse that works as well. In 8 out of 10 families supporting children, the minimum wage job accounts for less than 20% of the total household income.  A majority of studies also show that increasing the minimum wage actually cuts jobs and does not reduce poverty levels.  Additionally, nearly two-thirds of minimum wage earners receive a raise in their first year of employment.

The New York Times, editorialized about the minimum wage rate increase once on January 14, 1987 and then again on April 15, 1987.

The Times said in one of their editorials on January 14, 1987, “The idea of using a minimum wage to overcome poverty is old, honorable -­ and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.”

In each editorial, the Times disputed the flaws that proponents defended for the increase in minimum wage. The justifications they have been making since 1987 are still being used today. More recently, the Boston Business Journal editorialized on March 1, 2013 against the rate increase here in Massachusetts.

The BBJ said, “Regulate something and you get less of it. Regulate minimum wage jobs and you’ll get fewer of them. Massachusetts should shelve minimum wage hikes for the sake of the tens of thousands who can’t find a job.”

So what is the solution for helping the small percentage of minimum wage workers who are trying to support a family? In the 1970’s the Earned Income Tax Credit (EITC) was signed into law. This law allows low income households to receive a tax credit based on their income level; the lower their income, the higher the tax credit. This permits targeted low income households to receive a break rather than the minimum wage pool in general. Additionally, the Times editorialized in 1987 and it can still be encouraged today to increase job training for minimum wage workers in hopes that they will be promoted to higher paying professions.

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