Insights & Advice


A nation of minimum wage workers

Recently, the minimum wage in America has been the subject of much debate. Proponents of increasing the wage argue that people holding those jobs can’t possibly make ends meet. Those against it contend that by doing so even more people would be priced out of the workforce.  Why should you care?

After all, minimum wage workers are usually younger folks who work part-time or after school. Today, just about 4% of all hourly-paid workers receive the minimum wage and only 2%, if you count all wage and salary employees. That is still quite a lot of people, but when you break down those who are actually supporting a family on minimum wage, the numbers decline even further.

Consider that over 63% of minimum wage workers who would gain by increasing the minimum wage are second or third earners in a family that overall is making well above the poverty line, according to the U.S. Bureaus of Labor Statistics (BLS).  A full 43% of minimum wage workers, according to the BLS, live in a household that is earning over $50,000 a year in income.

Bottom line: it appears that half of the minimum wage work forces are teenagers and young adults (under 25). Spouses and children of wage earners providing a second and third income to a household account for 63%. As the minimum wage increases, this segment of the workforce would be even more likely to seek entry-level jobs to supplement household earned income. As such, they become an even larger percentage of this wage group and will tend to “crowd out” those in poverty who truly need these jobs.

Advocates of raising the minimum wage (to above $10/hour) claim that by doing so we would create 140,000 new jobs, which would contribute $32.6 billion to our GDP. I find that rather hard to believe given that so few wage earners are getting the minimum wage. So, why do I still advocate raising the minimum wage?

Last year I wrote a three-part column on “Inequality in America” revealing that the U.S. ranks last among developed nations in income equality throughout the world. Since then, this country’s divide between the haves and have-nots has widened. As such, anything that can shift the playing field in favor of the middle-class, if only in a small way, is a step in the right direction.

Forty percent of U.S. workers make less today than what a full-time minimum wage worker made back in 1968 when adjusted for inflation. And those of us that do have jobs work harder and longer hours than ever before with fewer benefits. While the rich get richer, our real wages have continued to decline. Rather than pay out benefits or raises, the trend among American corporations is to hire part-time workers.

There are many reasons why this country is experiencing severe dislocations in the workforce. Recession, a mismatch of skilled workers in certain sectors, American attitudes toward acquiring the new skill sets necessary today for a well-paying job, overseas wage competition pressures, technological change, lack of education, etc. But while this country sorts out these issues, there is nothing wrong with at least re-distributing some of the wealth via the minimum wage. God knows, Corporate America is not going to do it themselves.

Posted in Macroeconomics, The Retired Advisor