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Minimum Wage Proposal Renews Economic Debate

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About 3.8 million people, or 3 percent of the overall workforce, earn at or below the minimum wage (waiters and those in other professions who earn tips or commissions are sometimes paid less than the minimum wage), which is down from almost 8 percent of the workforce in 1979, according to the Bureau of Labor Statistics.

While that’s a sizable share of the labor force, most minimum wage workers are already above the poverty line, economists say. Roughly 23.5 percent of minimum wage workers are teenagers, many working after-school jobs. Another group of minimum wage workers are members of two-earner households whose income places them above the poverty line.

According to data compiled by the BLS, half of all workers at or below the minimum wage live in the South. And half of them work in the hospitality or leisure industry.

That industry has come to rely increasingly on their work, according to the BLS. In 2003, about 15.3 percent of the industry’s workforce earned the minimum wage or less. In 2011, 22 percent did.

The effect of raising the minimum wage, therefore, would mostly be concentrated in the South and among hospitality workers. Eighteen states and the District of Columbia already mandate higher minimum wages than the federal rate. They would not be affected by the change.

Economists are still divided on the question of whether a higher minimum wage would lead to fewer jobs. But they agree that if there is an effect on employment, it is likely to be small. And while a wage hike would increase consumption among lower-income people, the higher labor costs would also likely raise prices, eating into some of that new spending power.

But even though it would not make a huge difference in income inequality or poverty rates, Shierholz said she supports raising the minimum wage.

“This is a basic labor standard, and when it’s allowed to erode, it hurts not just low-income people but also moderate-income people,” she said.

Other economists, such as Harry Holzer, a public policy professor at Georgetown University, are more reticent, saying the labor market is still too shaky to absorb a higher minimum wage.

“My personal preference is to avoid anything that might give employers an excuse not to hire,” he said. “We’re already giving them a lot of excuses not to hire.”

They agree, however, that if the administration wants to reduce income inequality or bring more people out of poverty, there are other, more effective ways to do it.

Holzer said he would rather wait until the unemployment rate has dropped to 6 percent or so before raising the minimum wage. For now, he thinks infrastructure projects and beefed-up apprenticeship programs for younger workers would be more effective.

Strain said a simple cash transfer, in which the government boosts low-paid workers’ wages, would be a better, more targeted way to alleviate poverty. And both Holzer and Strain support expanding the Earned Income Tax Credit, which gives low-income working parents a break on their taxes.

Shierholz is dubious about the EITC, however. Employers have found a way to capture some of the program’s benefit by offering lower wages, knowing that workers’ after-tax pay will be higher thanks to the credit. Instead, she said the better way to address income inequality is through limiting free-trade agreements that hurt low-skilled workers, improving labor law protections for workers and having the Federal Reserve focus more on employment than on inflation.

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