An Article from the Heritage Foundation (www.heritage.org)
by James Sherk
In his State of the Union address, President Obama called for raising minimum wage to $9.00 an hour. He argued that “no one who works full-time should have to live in poverty.” Most minimum-wage workers, however, are not poor. Congress should examine which workers—that would not lose their jobs—would benefit from a higher minimum wage.
Data from the Bureau of Labor Statistics and the Census Bureau show that most minimum-wage earners are young, part-time workers and that relatively few of them live below the poverty line. Their average family income is over $53,000 a year. A hike in the minimum wage primarily raises pay for suburban teenagers, not the working poor. If Congress and the President seriously want to help the working poor, they should look elsewhere.
Few Minimum-Wage Positions
Relatively few Americans earn the federal minimum wage. In 2011 and 2012, 3.7 million Americans reported earning $7.25 or less per hour—just 2.9 percent of all workers in the United States. These numbers include workers who also earn tip income. Many of those earning less than the minimum wage work in restaurants and make more than the minimum wage after taking tips into account.
Minimum-wage earners fall into two distinct categories: young workers, usually in school, and older workers who have left school. Most minimum-wage earners fall into the first category; just over half are between the ages of 16 and 24. The rest are 25 or older.
Minimum-wage workers under 25 are typically not their family’s sole breadwinners. Rather, they tend to live in middle-class households that do not rely on their earnings. Generally, they have not finished their schooling and are working part-time jobs. Over three-fifths of them (62 percent) are currently enrolled in school. These workers represent the largest group that would benefit directly from a higher minimum wage, provided they kept or could find a job.
The characteristics of the teenagers and young adults who earn the minimum wage or less support the notion that these minimum-wage workers rarely work to support children and their families:
- 79 percent work part-time jobs.
- 62 percent are enrolled in school during non-summer months.
- Their average family income is $65,900 per year.
- Only 22 percent live at or below the poverty line, while 68 percent enjoy family incomes over 150 percent of the poverty line, which is $33,500 for a family of four.
- Most have not finished their education. A third have not yet finished high school, while almost a quarter have only a high school degree. Another two-fifths have taken college courses but have not yet graduated. Many of these are college students working part-time while in school. Only 3 percent have finished college and obtained a degree.
- Fully 60 percent are women.
- Only 5 percent are married.
Adults who earn the minimum wage are less likely to live in middle- and upper-income families than are the teenagers and young adults who earn the minimum wage. Nonetheless, three-fourths of older workers earning the minimum wage live above the poverty line. They have an average family income of $42,500 a year, well above the poverty line of $22,350 per year for a family of four. Most of them choose to work part-time, and a sizeable number are married.
The average older minimum-wage earner simply does not fit the stereotype of a worker living on the edge of destitution.
A few important characteristics of the 49.5 percent of minimum-wage earners who are over the age of 24 bear this out:
- Over half work part-time jobs.
- They have an average family income of $42,500 per year.
- Less than a quarter live in poverty, while 62 percent have incomes over 150 percent of the poverty line.
- They are better educated than younger minimum-wage workers but still have less education than the population as a whole: 22 percent have less than a high school education, 37 percent have only a high school diploma, and 29 percent have taken some college classes. However, only one in eight has a bachelor’s degree or more—far less than the 36 percent of all employees in that category.
- 67 percent are women.
- 41 percent are married.
Increased Minimum Wage Does Not Reduce Poverty
Many advocates of higher minimum wages argue that the minimum wage needs to rise to help low-income single parents attempting to survive on just a minimum-wage job. Minimum-wage workers, however, do not fit this stereotype. Just 4 percent of minimum-wage workers are single parents working full-time, compared to 5.6 percent of all U.S. workers. Minimum-wage earners are actually less likely to be single parents working full-time than is the average American worker.
Higher minimum wages do not address the main reason that most poor families live below the poverty line. Contrary to what many assume, low wages are not their primary problem, because most poor Americans do not work for the minimum wage. The problem is that most poor Americans do not work at all.
As the table demonstrates, two-thirds of individuals living below the poverty line did not work, and less than one in 10 worked full-time year-round. Families are poor not because they earn low wages but because they do not have full-time jobs. Raising the minimum wage does not address this problem.
Worse, making it more expensive to hire inexperienced workers leads businesses to hire fewer of them. This makes it harder for low-income families to gain the experience and skills necessary to rise out of poverty. This is one reason why studies consistently find that higher minimum wages do not reduce poverty rates.
Find Another Way to Help the Poor
Many support raising the minimum wage because they want to help low-income Americans get ahead, but minimum-wage earners are not much more likely to live in poverty than are most other Americans: Less than one in four live in a family with earnings below the poverty line. Two-thirds work part-time, and most are between 16 and 24 years old. Minimum-wage earners’ average family income exceeds $50,000 a year, and very few are single parents working full-time to support their families—fewer than in the population as a whole.
Most of the benefits from raising the minimum wage will go to families who are well above poverty. These benefits will come at the cost of reducing the availability of entry-level jobs. Employers respond to higher labor costs by hiring fewer workers. Higher minimum wages eliminate entry-level positions that provide unskilled employees the opportunity to gain experience. Less experience makes it harder for workers to become more productive and earn higher wages.
Unsurprisingly, researchers find that higher minimum wages do not reduce poverty. Congress should look for less ineffective ways to help the poor.
For references click here.
—James Sherk is Senior Policy Analyst in Labor Economics in the Center for Data Analysis at The Heritage Foundation.