UNDER DISCUSSION

  • Myths of the Minimum Wage

Half of Recovery Jobs Offer Low Wages. So Raise Them!

'It hurts the young. It helps too little. It boosts unemployment.' There are plenty of myths about the minimum wage. The reality is, more and more workers are working at a pay rate that puts them in poverty.

Every few years the public discourse once again turns its attention to the issue of raising the minimum wage. This is not surprising, because every few years it becomes clear that the federal minimum wage has not gone up, while costs for everything else have. The recession helped make this painfully aware, when stagnant wages became the norm not only for minimum-wage earners but also for millions of other workers. Exacerbating matters is that during the recovery the industrial sectors responsible for creating jobs have tended to be lower paying.

For those earning the federal minimum wage of $7.25 per hour there is a sobering fact. The federal poverty threshold for a family of three is approximately $18,000. So if this family has only one earner making minimum wage, household income would be about $15,000, placing that family below the poverty line. Indeed, in the Community Service Society’s recent annual survey of low-income New Yorkers, the "Unheard Third," our research showed that 78 percent of the full-time working poor experienced at least one hardship such as skipping meals, falling behind in rent or going without health insurance coverage, while 37 percent experienced at least two hardships.

There is something very wrong when someone works full-time year-round and his/her family could still live in poverty.

However, roughly half of the 3.5 million jobs that have been created across the nation during the recovery are in industries that offer lower wages, including retail trade, leisure and hospitality (especially food services), health services and temporary help services. The minimum wage is often the starting point for jobs in retail as well as leisure and hospitality, and the latter sector has the highest percentage of workers of any industrial sector who earn at or below the minimum wage—just over one in five employees in the leisure and hospitality sector earn at or below the minimum wage. These would include "tipped" workers whose employers are only required to pay $2.13 per hour if tips at least bring hourly earnings to $7.25 per hour. In addition, the percent of workers in the U.S. earning $7.25 per hour has nearly tripled since the start of the recession.

Several states have gotten the point and raised their state’s minimum wage (which cannot be lower than the federal minimum wage, with workers entitled to the higher of the two) including Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington. An estimated 1 million workers will be directly affected by these increases.

Speaker Sheldon Silver of the New York State Assembly has been pushing a bill to raise the state’s minimum wage from $7.25 per hour to $8.50 per hour. However, he faces opposition from Senate Majority Leader Dean Skelos, who in a recent interview invoked the myth that such an increase would displace teen workers.

In fact, research by the Economic Policy Institute shows that 80 percent of the workers who will benefit from higher wages in eight states that have recently increased their minimum wage are 20 years of age or older. Additional analysis by the Center for Economic Policy Research shows that today’s low-wage worker tends to be older, not younger. Yet New York City mayoral candidate Tom Allon proposes a two-tiered minimum wage structure, with the lower minimum for teenagers. Again, such an approach is based on a flawed perception that most minimum wage earners are teens.

Then there’s the age-old critique that a minimum wage increase results in employment losses and therefore hurts the very people—low-wage, low-skilled workers—it was intended to help. However, research comparing cross-county areas along state borders with differing minimum wages conducted by economist Arindrajit Dube of the University of Massachusetts (Amherst) along with T. William Lester and Michael Reich showed that overall employment in these areas did not decrease with an increase in the minimum wage.

There’s also the charge that only a small fraction of workers earn the minimum wage, so—relatively speaking—not that many people would be affected by a hike. Therefore, why bother? It’s true that in 2006, before the recession, according to the Bureau of Labor Statistics just over 2 percent of workers in the U.S. had hourly earnings at or below the minimum wage, but that proportion has now increased to six percent, or 4.4 million people. In New York State alone roughly 100,000 people earn the minimum wage, and at least another 100,000 earn below it.

The minimum wage in New York should not only be raised but also indexed to inflation so that every few years we’re not right back in the same boat. Speaker Silver smartly backs this idea. "Fix it and Forget It" is what Heidi Schierholz of the Economic Policy Institute titled her piece in 2009 about raising and indexing the minimum wage. Let's not forget those making minimum wage by ensuring that their earnings aren’t "poverty wages" not just this year, but next year and the year after that.




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