The Minimum Wage: Myths & Facts

››› ››› ALAN PYKE

Conservative media voices have insisted that an increase of the federal minimum hourly wage from $7.25 to $9 would harm the economy. However, a wealth of economic evidence disputes the claims that minimum wage hikes are job killers, that the minimum wage is already high, and that it only applies to jobs held by relatively young workers.

MYTH: Increasing The Minimum Wage Irrefutably Kills Jobs

Stephen Moore: Minimum Wage Hike "The Worst Idea Of All" In President's Speech, Because Unemployment Is Already High. Appearing on the February 13 edition of Fox News' Your World with Neil Cavuto, Wall Street Journal editorial board member Stephen Moore said:

You didn't even mention the worst idea of all, which is raising the minimum wage when we already have an effective-- we have a 14 percent unemployment rate in this country. [Fox News, Your World with Neil Cavuto, 2/13/13]

The Washington Times: "Mandated Minimum Wage Hikes Often Lead To Massive Job Loss." From The Washington Times: "President Obama's push to hike the minimum wage from $7.25 per hour to $9 per hour may sound good to minimum wage earners, but business owners and economic analysts aren't applauding. History shows that mandated minimum wage hikes often lead to massive job loss." [The Washington Times, 2/13/13]

Karl Rove: "Raising The Minimum Wage To $9 An Hour Would Actually Cost Jobs." In his Wall Street Journal column the day after the State of the Union address, Rove wrote: "Nevertheless, the president's suggestions won't spur job creation and economic growth. His proposals were liberal, stale, unfocused and often counterproductive. For example, raising the minimum wage to $9 an hour would actually cost jobs." [The Wall Street Journal, 2/13/13]

FACT: Numerous Studies Suggest Minimum Wage Increases Don't Kill Jobs, And May Even Increase Hiring

CEPR: Hiring Response To Minimum Wage Hikes "More Likely To Be Positive Than Negative." In a March 2011 report, the Center for Economic and Policy Research concluded that wage increases are more likely to result in more, rather than fewer, jobs:

Our estimated employment responses generally cluster near zero, and are more likely to be positive than negative. Few of our point estimates are precise enough to rule out either positive or negative employment effects, but statistically significant positive employment responses outnumber statistically significant negative elasticities. [Center for Economic and Policy Research, March 2011]

CEPR: No "Discernible Impact" On Current Minimum-Wage Workforce From Increases. In a March 2011 report, the Center for Economic and Policy Research found that raising the minimum wage has no "discernible impact" on employment:

"The results for fast food, food services, retail, and low-wage establishments in San Francisco and Santa Fe support the view that a citywide minimum wages can raise the earnings of low-wage workers, without a discernible impact on their employment. Moreover, the lack of an employment response held for three full years after the implementation of the measures, allaying concerns that the shorter time periods examined in some of the earlier research on the minimum wage was not long enough to capture the true disemployment effects." [Center for Economic and Policy Research, March 2011]

Multiple Studies Found Either No Effect On Employment Or An Increase In Employment Resulting From Minimum Wage Increases. From the Center for American Progress:

University of California, Berkeley, economist David Card and Princeton economist Alan Krueger's seminal study of the effect of the New Jersey 1992 minimum wage increase comparing fast food industry employment in New Jersey and Pennsylvania found no negative employment effect. In fact, it found stronger employment growth in New Jersey. While there was no national recession at the time, New Jersey's unemployment rate was 8.7 percent in parts of 1992.

Similarly, Lawrence F. Katz, a Harvard economist, and Alan Krueger studied fast food employment in Texas from 1990 to 1991 and found that employment slightly increased when the minimum wage was raised. The study included a 1990 minimum wage increase that occurred just before the 1990-1991 recession and a second increase that occurred just after the recession officially ended.

Moreover, David Card's study of the impacts on teen employment of the 1990 federal minimum wage increase using state-level data found no effect on teen employment. Most of the time period he studied included the 1990-1991 recession. [Center for American Progress Action Fund, 6/7/11]

Researchers Found "No Employment Effects Of Minimum Wage Increases" In Adjacent Counties In Neighbor States With Differing Minimum Wages. In a 2010 peer-reviewed article, UC-Berkeley's Arindrajit Dube, T. William Lester, and Michael Reich found that higher minimum wages did not hurt employment in the restaurant industry, and argued that their results were likely to hold up in other employment sectors:

In this paper, we use a local identification strategy that takes advantage of all minimum wage differences between pairs of contiguous counties.

[...]

For cross-state contiguous counties, we find strong earnings effects and no employment effects of minimum wage increases.

[...]

This result suggests that minimum wage increases do raise the overall earnings at these jobs, although there may be differential effects by demographic groups due to labor-labor substitution.

[...]

This evidence suggests that our findings are relevant beyond the restaurant industry." [Institute for Research on Labor and Employment, UC Berkeley, 11/30/10, via eScholarship.org]

FACT: Research Suggests Minimum Wage Increases Do Not Hurt Teen Employment

Economic Policy Institute: "The Warnings Of Massive Teen Job Loss Due To Minimum Wage Increases Simply Do Not Comport With The Evidence." In a November 25, 2009, post, the Economic Policy Institute found that teen employment is affected more by broad economic trends, like a recession, rather than changes in the minimum wage:

EPI

Figure B illustrates how teen employment is driven far more by larger labor market employment trends than by any effects of minimum wage changes. The black lines in Figure B mark times when Congress increased the minimum wage to keep up with inflation. The two-step increase in 1990 and 1991 occurred during a period of deterioration in the labor market, and the teen employment share dropped. The two-step increase in 1996 and 1997 occurred during a strong labor market, and the teen employment share increased. The three-step increase in 2007, 2008, and 2009 occurred during a weak labor market, and the teen employment share fell.

This observation is consistent with what careful empirical studies have found. While it is true that there is some disagreement among economists about whether increasing the minimum wage increases or decreases employment, there is a consensus on the essential point: the impact of a minimum wage raise on jobs, whether positive or negative, is small. The warnings of massive teen job loss due to minimum wage increases simply do not comport with the evidence. [Economic Policy Institute, 11/25/09]

University Of California: Minimum Wage Has Nothing "But Very Small Disemployment Effects" On Teen Employment. A June 2010 report by University of California-Berkeley's Institute for Research on Labor and Employment (IRLE) studying the effects of minimum wage increases on teen employment using a broad array of control variables found:

Including controls for long-term growth differences among states and for heterogeneous economic shocks renders the employment and hours elasticities indistinguishable from zero and rules out any but very small disemployment effects. Dynamic evidence further shows the nature of bias in traditional estimates, and it also rules out all but very small negative long-run effects. [Institute for Research on Labor and Employment, UC Berkeley, 6/21/10]

MYTH: Minimum Wage Hikes Hurt Small Businesses

Gretchen Carlson: Raising Minimum Wage May Be "Bad For Small Businesses." On the February 13 edition of Fox & Friends, co-host Gretchen Carlson claimed "[Obama] also wants to increase minimum wage, and of course, that would be great for people who are working at those jobs, but possibly bad for small businesses who have to pay higher wages." [Fox News, Fox & Friends, 2/13/13, via Media Matters

Andrea Tantaros: Increasing The Minimum Wage "Would Crush Businesses." On the February 13 edition of Fox News' The Five, co-hosts Eric Bolling and Andrea Tantaros had the following exchange:

BOLLING: Andrea, let me ask you about this: The minimum wage, $9 an hour, he wants a 24 percent increase in the minimum wage.

TANTAROS: Which would crush businesses. [Fox News, The Five, 2/13/13]

FACT: Many Studies Find Minimum Wage Increases Do Not Harm Small Businesses

Center For American Progress: Data Show States With Increased Minimum Wage Had Higher Small Business Job Growth. A 2006 joint study by the Center for American Progress and Policy Matters Ohio compared small business performance between states using the federal minimum wage and states that had a higher minimum wage, and found that employment in small businesses grew more in states with a higher minimum wage. [Center for American Progress, May 2006]

Fiscal Policy Institute: "Indicators Of Economic Performance Were Consistently Better" In Higher Minimum Wage States For Small Business Job Growth. According to the Fiscal Policy Institute:

In examining state-level small business job growth, the best government data available permits a comparison of 1998 and 2003; the latter is the most recent year for which the data are available. For the 10 states and the District of Columbia that had set their minimum wages above the federal level for most of this period, indicators of economic performance were consistently better than for the other 40 states where the federal minimum wage of $5.15 an hour prevailed. [Fiscal Policy Institute, 3/30/06]

NYTimes: Small Business Owners In A State With Higher Minimum Wage "Have Prospered Far Beyond Their Expectations." According to The New York Times:

Just eight miles separate this town on the Washington side of the state border from Post Falls on the Idaho side. But the towns are nearly $3 an hour apart in the required minimum wage. Washington pays the highest in the nation, just under $8 an hour, and Idaho has among the lowest, matching 21 states that have not raised the hourly wage beyond the federal minimum of $5.15.

Nearly a decade ago, when voters in Washington approved a measure that would give the state's lowest-paid workers a raise nearly every year, many business leaders predicted that small towns on this side of the state line would suffer.

But instead of shriveling up, small-business owners in Washington say they have prospered far beyond their expectations. In fact, as a significant increase in the national minimum wage heads toward law, businesses here at the dividing line between two economies -- a real-life laboratory for the debate -- have found that raising prices to compensate for higher wages does not necessarily lead to losses in jobs and profits.

Idaho teenagers cross the state line to work in fast-food restaurants in Washington, where the minimum wage is 54 percent higher. That has forced businesses in Idaho to raise their wages to compete.

Business owners say they have had to increase prices somewhat to keep up. But both states are among the nation's leaders in the growth of jobs and personal income, suggesting that an increase in the minimum wage has not hurt the overall economy.

"We're paying the highest wage we've ever had to pay, and our business is still up more than 11 percent over last year," said Tom Singleton, who manages a Papa Murphy's takeout pizza store here, with 13 employees. [The New York Times1/11/07]

MYTH: We've Already Raised The Minimum Wage Enough

Nicole Petallides: The Minimum Wage "Really Has Grown Exponentially" In Recent Years. On the February 14 edition of Fox & Friends, Fox Business correspondent Nicole Petallides said:

As you continue to raise the minimum wage, which was $5.15 back in 2007, so it really has grown exponentially, we've had on on the Fox Business Network, small business owners, franchise owners, who talk about the fact that (a) they just won't be hiring as much, (b) that if they have to go from $7.25 up to nine bucks, then the nine-dollar employees are gonna say hey, how come this inexperienced young worker is making what I'm making and I want a raise, too. [Fox News, Fox & Friends, 2/14/13]

Elizabeth MacDonald: The Minimum Wage Jumped 41 Percent In Three Years From 2007 To 2009. In her FoxBusiness.com column, network correspondent Elizabeth MacDonald wrote:

For the 10-year period from 1997 to 2007, the minimum wage was $5.15 per hour. Congress raised it to $5.85 in 2007, then again to $6.55 in 2008 and finally to $7.25 in 2009. That means over that three-year span, businesses who rely on minimum-wage workers saw their labor costs jump 41%, right as the economic crackup began. [FoxBusiness.com, 2/13/13]

FACT: Minimum Wage Growth Has Lagged Inflation, Leaving Minimum Wage Earners With Far Less Purchasing Power Today Than Previous Decades

Despite Tripling In Nominal Value, The Federal Minimum Wage Has Actually Fallen 20 Percent In Real, Inflation-Adjusted Terms. From Bloomberg:

Bloomberg

Workers in the U.S. earning the minimum wage are worse off now than they were four decades ago.

The CHART OF THE DAY shows that after adjusting for inflation, the federal minimum wage dropped 20 percent from 1967 to 2010, even as the nominal figure climbed to $7.25 an hour from $1.40, a 418 percent gain.

[Bloomberg, 12/28/11]

Prior To Increases Beginning In 2007, Minimum Wage Had Lost Over 40 Percent Of Its Purchasing Power. From Bloomberg:

The decline would have been worse if not for increases that took place from 2008 through 2010 in how much employers were legally obligated to pay. Combined with more stable consumer prices, those adjustments helped trim the reduction in earnings from 41 percent at the end of 2007, following a decade of no change in minimum pay. [Bloomberg, 12/28/11]

If The Minimum Wage Reflected Increases In Worker Productivity, It Would Be Nearly $22 Per Hour. Citing a study done by the Center for Economic and Policy Research, The Huffington Post explained that the current minimum wage lags far behind what it should be after accounting for productivity increases. From The Huffington Post:

The minimum wage should have reached $21.72 an hour in 2012 if it kept up with increases in worker productivity, according to a March study by the Center for Economic and Policy Research. While advancements in technology have increased the amount of goods and services that can be produced in a set amount of time, wages have remained relatively flat, the study points out. [The Huffington Post, 2/13/13]

Working 40 Hours Per Week At An Hourly Rate Of $10.65, A Single Parent With Three Dependents Would Still Be Below The Poverty Line. A September 2011 CNNMoney article noted that even if the minimum wage were above President Obama's proposed $9 an hour rate, it would fail to lift families out of poverty. From CNNMoney: 

About 20% of American adults who have jobs are earning only $10.65 an hour or less, according to [economics professor Paul] Osterman's analysis. Even at 40 hours a week, that amounts to less than $22,314, the poverty level for a family of four. The federal minimum wage currently stands at $7.25 an hour (18 states set their own rates above the federal level, maxing out at $8.67 an hour in Washington State). But increases have not kept up with inflation. When adjusted for inflation, the highest federal minimum wage was in 1968, when it was the equivalent of $10.38 in today's dollars. [CNNMoney, 9/27/11]

Full-Time Employment At Present Federal Minimum Wage Would Not Keep A Single-Income Family Of Four Out Of Poverty. From the University of California at Davis' Center for Poverty Research:

The current federal minimum wage is $7.25 per hour.  If a minimum wage worker is employed full-time (forty hours per week for 52 weeks), that worker would earn $15,080 annually.

In 2011, the poverty threshold for a single individual was $11,702 and the poverty threshold for a family of 4 with two children under 18 was $22,881. 

Thus, a single full-time minimum wage worker has an income above the poverty threshold but if a full-time minimum wage worker is the sole source of income in a family of four, that family's income is only 66% of the amount required to meet its basic needs. [Center for Poverty Research UC Davis, accessed 2/14/13, emphasis in original]

MYTH: No One Expects To Live Off The Minimum Wage, It's Just For Teenagers

Stuart Varney: "We're Not Expecting People To Live On That. That's Not What The Minimum Wage Is For, For Heaven's Sake." From the February 13 edition of Fox Business' Varney & Company:

SCOTT PAGE (CEO, The Lifeline Program): No one making $9 an hour, that's $18,000 a year, how do you expect people to live right now on $14,000 a year with one child...?

STUART VARNEY (Host): You don't expect people to live -- We're not expecting people to live on that. That's not what the minimum wage is for, for heaven's sake. It's for people fresh out of high school getting their very very first job, it's not for guys in their forties and fifties. It's not for them.  [Fox Business, Varney & Company, 2/13/13]

The Washington Free Beacon: "Majority Of Minimum Wage Earners" Are Teenagers. From an article in The Washington Free Beacon arguing against an increase in the minimum wage:

However, those 19 states boast some of the highest unemployment rates in the nation, especially among the teenagers who make up the majority of minimum wage earners. [The Washington Free Beacon, 2/14/13]

FACT: Half Of Minimum Wage Earners Are 25 Or Older, Representing Millions Of Adult Workers

Most Minimum Wage Earners Are Adults, Not Teenagers. A December 26, 2010, (Eugene, OR) Register-Guard op-ed noted that the vast majority of those earning minimum wage are over the age of 20:

Even the claim that the minimum wage only affects teenagers looking for pocket change does not hold up. Most minimum wage earners are adults, many of whom support families on this income. Nationwide, three-quarters of minimum wage earners are 20 or older. [The Register-Guard12/26/10]

Economic Policy Institute: "Perception Of Minimum-Wage Workers As Primarily Teenagers" Is Unsupported By Facts. In a report on a prospective increase in the federal minimum wage to $9.80/hour in 2014, EPI found that 87.9 percent of the workers affected nationwide are age 20 or older:

Minimum-wage workers are older and, as discussed later, have greater family responsibilities than commonly portrayed. The facts do not support the perception of minimum-wage workers as primarily teenagers working for spending money (though even if true, it would not justify paying teens subpoverty wages).

Instead, as seen in Figure C, 87.9 percent of workers who would be affected by increasing the federal minimum wage to $9.80 are at least 20 years old. This share varies from a low of 77.1 percent in Massachusetts to 92.4 percent in Florida (and 93.9 percent in the District of Columbia). Thus, in every state, more than three-fourths of workers who would be affected are at least 20 years old.[Economic Policy Institute, 8/14/12]

Bureau Of Labor Statistics: 50.5 Percent Of Minimum Wage Earners In 2011 Were 25 Years And Over In Age. According to the Bureau of Labor Statistics for 2011, just over half of all workers paid at or below the federal minimum wage were aged 25 and above, representing 1,933,000 people. [BLS.gov, accessed 2/14/13]

FACT: Less Than A Quarter Of Minimum Wage Earners Are Younger Than 20

BLS: 16-To-19-Year-Olds Represent Less Than One Quarter Of Those Working At Or Below The Federal Minimum Wage Since 2007. Below is a table based on Bureau of Labor Statistics data on the demographic breakdown of workers earning the federal minimum wage or below, showing that workers younger than 20 years old have comprised less than a quarter of all such workers from 2007 to the present, and were between 25 and 30 percent of all such workers in prior years.

BLS

[BLS.gov, accessed 2/14/13

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