An Argument Against Raising Minimum Wage

Many economists argue that raising the minimum wage won't alleviate poverty and would shake an already fragile economy. NPR's Farai Chideya talks with Alan Reynolds, senior fellow with the Washington D.C.-based Cato Institute.

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ED GORDON, host:

When it comes to raising the minimum wage, not everyone agrees with Congressman Miller. Alan Reynolds is a senior fellow with the Cato Institute and an expert on wage policy. He told NPR's Farai Chideya that raising the minimum could have a number of adverse effects on the economy.

For one, some employers would likely chose to scale back jobs.

Mr. ALAN REYNOLDS (Senior Fellow, Cato Institute): More important, it results in a lot of people who have been earning the minimum wage earning less than the minimum wage, and people are often surprised by that.

Let me give you the figures for 2004. This is from the statistical abstract, so it's not hard to find. Of the people who are working by the hour, 7/10ths of one percent were earning the minimum wage. That's not very many - 520,000 in 2004. They were 2 percent, 1.4 million - about 1 and a half million - earning less than the minimum wage.

How is that possible? Mall employers, farmers, lots of occupations are exempt from the minimum wage. So the last time we raised the minimum wage, lo and behold, the percentage earning less than the minimum wage rose to 4.2 percent of the wage and salary workers - three million.

That's not necessarily a good thing, is it? You basically have more people trying to compete for grape-picking jobs, or working in selling hot dogs in the street or day laborer or babysitting and that sort of thing.

FARAI CHIDEYA reporting:

Well, maybe then you can contextualize this in low-wage workers, as opposed to just minimum wage. So you've got people who are making the minimum wage, and you have people who are making even less than the minimum wage. How does that break down?

Mr. REYNOLDS: Well, there's three times as many earning less than the minimum wage as they're earning the minimum wage. Of course, there's a lot more. Most workers earn more than the minimum wage. Even most young people earn more than the minimum wage.

Fast food restaurants typically pay more than the minimum wage. When you talk minimum wage, it's really entry-level, and it's usually young people trying to get that first job. And if they do pretty well, three months, six months down the road, they get a little raise.

Have I ever worked as a minimum wage? Sure. I was about 16 or 17 years old then. Most of us have. Have I worked for less than the minimum wage? Yes I have. I've worked for food and tips. That's the way it is, but you don't stay there.

CHIDEYA: You have written articles taking to task people who, you argue, have fuzzy math on the issue of the minimum wage. What ways would you then go about reducing poverty for working people?

Mr. REYNOLDS: Actually, I wrote on book on this called Income and Wealth, and that's a chapter in there. Turns out there really aren't very many people who are working full time who are poor. Maybe one percent. People are poor very often because they can't work for one reason or another. Disability, unemployment, so on and so on.

Obviously, doing something that will raise unemployment isn't going to help poverty. People who can't get work at 5.15 an hour aren't going to find work at 7.25 an hour.

And, you know, everybody knows this. And why else do you think it is that Congress isn't just saying, well, let's put it up to 7.25 right now? They're saying, well, let's put off into the future because maybe by then it won't sting so much. But they know if they did that right away, there'd be a big hike in youth unemployment. The youth wouldn't get the experience they need to get the second job, which is a better job. And it's just basically a bad idea all the way around.

It's just something that economists really know better than this. There are a couple who argue that this is innocuous if done carefully. But to push it to 7 and a quarter at a time when the economy is facing high energy prices and rising interest rates - it looks a little iffy to me, and I think it's probably a very bad idea.

CHIDEYA: So looking at the bill that failed in the Senate, can you break down how the different interests played out for us? How did the business lobby -usually so against raising the minimum wage - fight for it, and why would the AFL oppose it?

(Soundbite of laughter)

Mr. REYNOLDS: Well, of course, it was tied to a reduction in the estate tax, which under current law, disappears for one year and then comes back with a vengeance. Was that a tradeoff? Well, yeah, as tradeoffs go, it's kind of an interesting combination.

As far as business not opposing it - you know, most business aren't affected by the minimum wage. Minimum wage, as we just said, only literally affects about half a million people. That's not very many in this big country. I don't think the person I buy hamburgers from is getting the minimum wage. I'll ask next time I get one.

So it's when you work people's self-interest and you work their special interests, they're going to say, well, you know, so what if some young people can't get jobs? There's so many good things in this bill. I think I want it to pass. Well, there were good things in the bill, and the good things should pass and the bad things shouldn't. And they probably should unbundled the two.

CHIDEYA: Let me ask you this: if, as you argue, the minimum wage is in and of itself not critical to very many of American workers - isn't the idea of the minimum wage something that will lift wages overall? The rising tide that lifts all boats?

Mr. REYNOLDS: Oh, I don't think there's any evidence for that. I mean, the notion is, gee, if the bottom goes up, the next spring will go up, too. What happens instead is - you can see when you go to your local supermarket - and there used to be 10 people checking out groceries and now you check out yourself. I mean, there's only three people checking out groceries. In other words, technology can replace a lot of these low-end jobs.

I can remember when people used to sit in an elevator and move you up and down. So obviously, now you push a button. I can remember when somebody used to hand you a towel in the washroom. Well, those jobs are gone and good riddance, but there are some jobs that are perfectly fine. I remember when people used to hand wash cars, now you go through a machine. You get the idea.

So at some point, if you raise the cost of simple labor - the kinds of jobs that young people with no skills do and no education, or your new immigrants with no education - what you're basically doing is just cutting them off, and they can't even begin to climb the ladder of opportunity. They're cut off at the start. And that's not a good idea.

CHIDEYA: Alan Reynolds, thank you so much.

Mr. REYNOLDS: Thank you.

GORDON: That was NPR's Farai Chideya speaking with Alan Reynolds, a senior fellow with the Kato Institute, a Washington, D.C.-based think tank.

(Soundbite of music)

GORDON: Coming up, Supreme Court Justice Anthony Kennedy says Western democracy has a ways to go before it reaches other parts of the world. And what's that they're singing? And what's it making our children do? We'll discuss these topics and more on our Roundtable.

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