A FINELY DRESSED POOR IDEA:

Raising the Minimum Wage

Emily Hermann -- English 252

n February of 2014, President Obama signed an executive

order to raise the minimum wage for federal employees to
$10.10, following an earlier State of the Union address where

he urged congress to similarly increase the federal minimum wage

(Final Rule). In his discussions on the subject, he advocates that an
increased minimum wage will increase productivity of workers, lower
turnover rates, alleviate poverty, boost the economy, and benefit two
million workers (Raise the Wage). Critics of the plan cite decreased
job availability, increased cost of goods, job loss, and even closure of
businesses as being inevitable results of raising the minimum wage
(Hassett and Strain). Both sides present many convincing arguments,
statistics, and research to support their case. There is a Congolese

Being well
dressed does not
prevent one from
being poor.

proverb that says Being well dressed does not prevent one from being poor. Although proponents for raising the minimum wage have
dressed their plan up well, they cant prevent it from being a poor idea.
Through closer analysis of the studies presented, data gathered, and
application of time-tested economic principles, we can declare that
raising the minimum wage will do much more harm than good for minimum-wage earners and the job market as a whole.

Characteristics of minimum wage workers

To the casual interpreter, statistics seem to be irrefutable facts
but just like anything else, they are subject to change depending on
how they are presented. The White House has produced a brief video
and launched a campaign entitled Raise the Wage, explaining why
its so important to raise the minimum wage. Among other things,
they claim that doing so will lift two million workers out of poverty, in
addition to benefiting 28 million workers. The campaign also claims
A Finely Dressed Poor Idea 1

that a minimum wage increase will give businesses customers with

more spending money, [and] it will grow the economy for everyone,
(Raise the Wage). As part of their campaign, Nancy Pelosi sent a
Twitter fact sheet claiming that, contrary to popular belief, the average minimum wage worker is not a teenager living at home; rather, 88
percent of minimum wage workers are over the age of 20 (the average
being a 35 year-old woman with children) and most of them are the
primary bread-winners in their families (Pelosi). These statistics are
shocking, and if we stop there, we will find ourselves similarly enraged
at the injustice of 88 percent earning just $7.25 hourly. However, upon
closer inspection, many of these statistics begin to fall apart. Her source
is cited as the Economic Policy Institute, but there is no specific study,
statistic or even agency that is credited with the information, and the
specific data cannot be found from any published document from the
EPI.

Raising the
minimum wage
will affect the
wage of only 0.13
percent of the
total workforce

In contrast, the Bureau of Labor Statistics report detailing the

characteristics of the minimum wage workforce reveals that out of the
total workforce, 58.8 percent of employees are paid hourly. Out of
those hourly workers, only 4.3 percent are paid a rate at or below the
minimum wage. Out of those minimum wage workers, 49.6 percent
are under the age of 25, as opposed to the assumed 12 percent from
Pelosis information (Characteristics). In fact, all of these statistics are
significantly different from those given by Pelosi and the White Houses
campaign (which also fails to give actual reports or sources to credit
their facts.) We do know, however, that the information from the Bureau
of Labor Statistics is accurate. So we can conclude that, contrary to
what is advertised, raising the minimum wage will affect the wage of
approximately 1.3 percent of the hourly workers, and 0.13 percent of
the total workforce. Of which, 50 percent are workers under the age of
25, and nearly 50 percent are single individuals who have never been
married (Characteristics). There are certainly people who would be
affected by raising the wage floor but they are hardly the demograph-

2 252 Faux Journal

ic implied by proponents of the movement, and the majority of them

are not breadwinners with families. This is not to say that hiking the
wage floor will be harmless because it will change the employment of
many minimum wage earners, just not for the better.

Poverty level
Raise the Wage claims that increasing the federal minimum
wage will alleviate poverty, however, only 11.3 percent of the workers

This results in

affected (which is about 0.5 percent of the workforce) are at poverty

job loss for less-

level so its safe to say that the direct effect on poverty will be minimal

skilled workers,

at best (qtd. in Hasset and Strain). Why is this effect so negligible? The

who are typically

proponents of wage raises imply that most, if not all, minimum-wage

earners are at or below the poverty line. Not only is this not the case,
but also the number of people in the workforce at or below the poverty

those at poverty
level.

line is not the same as the total number of people currently in poverty.
The current labor force participation rate is 62.7 percent (Employment Situation). Which means out of the people ages 16 and up in
America, only about 63 percent are working. Many of the people living
in poverty are part of the non-participatory 37 percent. Raising minimum wage will not help the people in poverty who dont have a wage
in the first place. The Raise the Wage campaign states that raising
the minimum wage will help a family of four with a single breadwinner
rise above the poverty line. While that might be true for a few individual
families, it will drag many more down into poverty. David Neumark,
and William Wascher conducted a study where they analyzed the effects
of minimum wage on family incomes, and they found that, Although
minimum wages do increase the incomes of some poor families, the
evidence indicates that their net effect is, if anything, to increase the
proportions of families with incomes below or near the poverty line,
(Neumark and Wascher, Minimum Wages). While perhaps some
families will see wages increase, the overall percentage of families at or
below the property line increases. There are many factors that play into
A Finely Dressed Poor Idea 3

this, and a big one is that raising the minimum wage results in job loss
for less-skilled or uneducated workers who are typically those at the
poverty line.

Bad research and invalid studies

This is not a new argument. Opponents of a minimum wage have
always said that raises result in job loss and businesses closing. Propo-

A solid majority

nents have myriad studies that claim that there is no proof of minimum
wage increasing unemployment rates. A popular study often referenced

of studies have

by those who support minimum wage increase was conducted in 1994.

found that very

Researchers conducted a study on minimum wage increase on the fast-

few, if any, valid

food industry in New Jersey. The study was conducted solely through

studies provide
convincing proof
that raising the
minimum wage
helps emplyment.

telephone surveys to fast-food workers, and concluded that the minimum wage hike resulted in a 17.6 percent increase employment in the
industry (Card and Krueger). Not surprisingly, more thorough research
later overturned these results. Using payroll data rather than telephone
interviews, the new study concluded that the New Jersey minimum
wage increase led to a 4.6 percent decrease in employment in New
Jersey, (Neumark and Wascher, Case Study). Rather than increasing minimum wage by nearly 20 percent, which the original study (and
pro-minimum wage advocates) claim, the reality shows that it resulted
in a nearly 5 percent decrease in employment. Another commonly
referenced article was a six-year study, which concluded, There is no
adverse effect to raising minimum wage, (Dube, Lester, and Reich). A
similar, less well-known study said the mean adverse effect of raising
minimum wage is low to zero, (qtd. Hassett and Strain). Both of these
studies were later refuted as having neither conclusions nor methods
that were supported by the data (Dube, Lester, and Reich). Regardless,
both studies continue to be cited as accurate by minimum wage supporters. In fact, during a 2007 survey over 90 minimum-wage studies
Neumark and Wascher determined that a solid majority of the literature found that increasing the minimum wage decreases employment.

4 252 Faux Journal

Similarly, they found that very few if any valid studies provide convincing proof that it helps employment statistics (Neumark, Wascher).

Labor-labor exchange
The aforementioned six-year study, in addition to many that reject
a negative effect on unemployment, has an essential flaw in determining the real effect of minimum wages it did not have a control to
compensate for labor-labor exchanges, which involve companies replacing a low-skilled worker with a high-skilled worker. When this happens,
the number of employed people stays the same, even though the people
themselves are different. Regarding the former study, James Dorn, an
economic journalist for Forbes.com writes, recent studies based on
data for contiguous counties across state borders have ignored labor-labor substitution and wrongly concluded that higher minimum wages
do not adversely affect employment, (Dorn). This phenomenon is the

Labor-labor

primary drawback to raising the minimum wage rather than helping

substitution is the

minimum-wage workers it actively harms them. Between 2004 and

2006, New York State raised their minimum wage from $5.15 $6.75
a 31.1 percent increase (Sabia and Burkhauser). A study of the wage
hikes on 16-to-29 with little to education ideally, those who would be
helped by a minimum wage increase found that it had adverse effects
on their employment. In fact, although the average wage increased, it

primary drawback
to raising
minimum wage -it harms minimum
wage workers.

was associated with a 12.2 to 36.5 percent decrease in employment in

less educated 16-to-29 year olds (Sabia and Burkhauser).
A study conducted in 2003, of lowered minimum wage during the
1980s found that a 10 percent reduction of the minimum wage caused
the wage gap to increase, and the average low-income wage to decrease
8 percent. While those numbers seem bad, the study also found that in
addition to the lowered average wage, there was a strong increase in
human capital which is the collective skills and knowledge of a group
of people to create economic value in a community, (Dorn). Although
the lowered minimum wage caused a drop in the average low-income,
A Finely Dressed Poor Idea 5

it caused an increase in the number of employed workers which helps

alleviate unemployment, and in turn decreases the percentage of workers at or below the poverty line.

A 10 percent
increase in the
minimum wage
leads to a 1 to 3
percent decrease
in employment
for low-skilled
workers.

Reaction from businesses

One of the White Houses big points in favor of raising the minimum wage is that employees who are paid more money will be more
productive and turnover will be decreased, which will compensate for
the increased operating cost of the company. This may well be the
case, but lets not forget that those employees probably arent going to
be the same low-skill laborers who have the jobs now. The economic
law of demand tells us that as something costs more, the demand for
it goes down. This works for employees as well as it does for products.
As low-skilled workers (who typically occupy minimum-wage positions)
become more expensive, companies will use them less (Gorostiaga and
Rubio-Ramirez). This doesnt mean that they will decrease their operating force right away, or that theyll close their doors, but, as researchers
Jonathan Meer and Jeremy West point out, minimum wage reduces
job growth, primarily though effect on job creation. This means that
as the cost of filling an entry-level position goes up, employers will
be more willing to leave that position empty, rather than employing
another expensive person. In fact, Dorn writes, There is abundant
evidence that a 10 percent increase in the minimum wage leads to a 1
to 3 percentdecreasein employment of low-skilled workers (Dorn). In
addition to potential job loss for low-skilled workers, those same workers
and others not currently in the workforce will have trouble finding or
re-entering employment, as jobs will be scarce and competition fierce.
Once the luxury of having the power to choose from myriad employees
goes even further into corporate laps, employers can easily replace lowskilled workers with higher-skilled ones. With so many young, unskilled
workers looking for work, employers can pick and choose, Dorn states.
They can cut benefits and hours. This is not only bad for less-skilled

6 252 Faux Journal

workers, but the high skilled workers will be moving in to fill those
lower-skilled position, and ultimately earning less money than they
previously would. As more high-skilled workers are hired, their wages
and productivity eventually decrease. (Gorostiaga and Rubio-Ramirez).
The Raise the Wage campaign did get something right, however. Since
the job market will be deflated, increasing the minimum wage will
decrease turnover for companies; employees will no longer have many
options for jobs, so theyll hold on to whatever minimum wage employment they can find, while many low-skilled workers wont find work
at all. All of this is hardly the American dream. What this labor-labor
exchange boils down to is competition for positions between skill levels
of workers. Unless the ratio of low-skilled to high-skilled employees is
completely proportional, having a forced minimum wage makes everyone lose, since it forces workers to compete for the same position, where
over-qualified employees will be under-paid, and qualified employees
will be turned away (Gorostiaga and Rubio-Ramirez).

Increasing

Overall economic effects

minimum wage

As for the claim that increasing minimum wage puts more money

decreases buying

in consumers pockets and therefore stimulates the economy, econ-

power and job

omists on both sides of the debate agree that this is questionable at

potential for low-

best. Thinking about the proposed minimum wage of $10.10 an hour,

Dube states, Its hard to get to something bigger than a few billion

skilled workers.

dollars in net stimulus, (qtd. Dorn). An even bigger increase, as some

proponents are seeking, would have an unprecedented and unknown
effect. Chances are if employers pass along their greatly increased labor
expense in the form of higher prices, well get inflation, which negates
any real wage increase for the consumer. In an interview with the
Washington Post, Felix Salmon, a financial journalist states, I dont see
why this is a serious consideration. Economically speaking I think we
have more targeted ways of providing stimulus - like give money to the
unemployed, (qtd. Dorn).
A Finely Dressed Poor Idea 7

Increasing the minimum wage decreases the buying power and

job potential for low-skilled workers, as well as decreasing productivity
and income for higher-skilled workers. Ultimately, the plan will end up
hurting more than just the people who will inevitably lose their jobs. As
the job market tightens, and entry-level positions get more and more
scarce it will be harder for individuals with little experience to enter

A lower minimum

the workforce at all, let alone get the experience they need for a high-

wage takes the

er-than-minimum position. Therefore we will have a self-perpetuating

power out of
the employers
hands and places
it in the hands of
employees.

system, where employees find themselves stuck in a never-ending circle

of minimum wage employment. This is why a higher-than-minimum
wage actually hurts lower-skilled, low-wage earners, and puts more families at or below the poverty line than a lower minimum wage would.
Alternatively, a lower minimum wage frees employers to hire more
people creating jobs. As more jobs are created, competition for workers increases, which will naturally raise wages. This takes the balance of
power from the hand of the employers where they are free to reduce
benefits, hours and staff and places it into the hands of the work force
where they are free to choose the best pay, benefits and position out
of many available. The complexities of this debate are intricate, but the
facts dont lie; it doesnt matter how nicely you dress the plan to increase
the federal minimum wage its still a poor idea.

8 252 Faux Journal

Works Cited
Characteristics of Minimum Wage Workers 2013. Bureau of Labor Statistics. Bureau of Labor
Statistics, March 2013. Web. 25 October 2014.
Card, David and Alan B. Krueger. 1994. Minimum Wages and Employment: A Case Study of
the Fast-Food Industry in New Jersey and Pennsylvania. American Economic Review,
Vol. 84, pp. 772-93.
Dorn, James. The Minimum Wage Delusion, And The Death Of Common Sense.Forbes.
Forbes Magazine, 5 July 2013. Web. 23 Oct. 2014.
Dube, A., Lester, T.W., and Reich, M. 2010. Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties. Review of Economics and Statistics. Vol. 92(4), pp.
945-64.
Employment Situation Summary.U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, 18 Sept. 2014. Web. 26 Oct. 2014.
Final Rule: Executive Order 13658, Establishing a Minimum Wage for Contractors.Wage and
Hour Division. United States Department of Labor, 12 Feb. 2014. Web. 26 Oct. 2014.
Gorostiaga Alonso, Arantzazu, and Juan Francisco Rubio-Ramirez.Optimal Minimum Wage in
a Competitive Economy. Rochester, Rochester: Social Science Research Network, 2005.
Print.
Hassett, Kevin A., and Michael R. Strain. Why We Shouldnt Raise the Minimum
Wage.American Enterprise Institute. N.p., 10 Mar. 2013. Web. 25 Oct. 2014.
Neumark, David, Mark Schweitzer, and William Wascher. 2005. The Effects of Minimum
Wages on the Distribution of Family Incomes: A Non-Parametric Analysis. Journal of
Human Resources, Vol. 40(4), pp. 867-94.
Neumark, David, and William Wascher. Minimum Wages and Employment.Discussion Paper
Series2570th ser. Jan (2007):. Print.
--- . Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey
and Pennsylvania: Commentary American Economic Review, 2000, vol. 90, issue 5,
pages 1362-96.
Pelosi, Nancy (NancyPelosi). #1010Means millions of Amerians would see higher wagesparticularly women who work full time #RaiseTheWage. 30 Apr. 2014, 8:24 a.m. Tweet.
Raise the Wage.The White House. The White House, 10 Oct. 2014. Web. 23 Oct. 2014.
Sabia, Joseph J. and Richard V. Burkhauser. 2008. The Employment and Distributional Consequences of Minimum Wage Increases: A Case Study of New York State. Employment
Policies Institute.
Teulings, Coen N. The Contribution of Minimum Wages To Increasing Wage Inequality. Economic Journal 113.490 (2003): 801-33. EconLit with Full Text. Web. 26 Oct. 2014.

A Finely Dressed Poor Idea 9