The Bare Minimum – Does raising the minimum wage really drive away jobs?

 Mary Fallin made news last week when she signed a bill preventing municipalities in Oklahoma from raising the minimum wage. 7.3% of workers in Oklahoma earn the minimum wage, higher than the national rate of 4.3%. Fallin said the bill, proposed in response to efforts to raise the minimum wage in Oklahoma City, was necessary to protect jobs. As the AP reported:

“Most minimum-wage workers are young, single people working part-time or entry-level jobs,” Fallin said. “Many are high school or college students living with their parents in middle-class families.

“Mandating an increase in the minimum wage would require businesses to fire many of those part-time workers. It would create a hardship for small business owners, stifle job creation and increase costs for consumers,” she said. “And it would do all of these things without even addressing the goal of reducing poverty.”

Let’s fact check this statement.

1.“Most minimum-wage workers are young, single people working part-time or entry-level jobs,” Fallin said. “Many are high school or college students living with their parents in middle-class families.”

The majority of minimum wage jobs (64%) are in fact part time, but the age data is more fuzzy. The Pew Research Center found that 50.6% of minimum wage workers are ages 16 to 24; 24% are teenagers (ages 16 to 19). 50.6% is a majority, but it’s a bare one, and well within the margin of error. Even if 50.6% is the exact number, that still leaves 49.4% of minimum-wage workers who are above the age of 24. 60% of minimum wage earners in Oklahoma are women, and 31% of those women have dependent children.

2. “”Mandating an increase in the minimum wage would require businesses to fire many of those part-time workers. It would create a hardship for small business owners, stifle job creation and increase costs for consumers,”

The most comprehensive study of the impact of the minimum wage on jobs, (by Arindrajit Dube at the University of Massachusetts-Amherst and Michael Reich of the University of California at Berkeley) comparing employment across contiguous counties with different minimum-wage levels between 1990 and 2006, finds that the impact on job retention and job creation is close to zero. The cost of increased wages is offset by increased spending by workers and by lower employee turnover. Some states have seen a decrease in minimum wage jobs, but these tend to correlate to broader regional trends in employment. David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve – both opponents of raising the minimum wage – noted in 2011 that a higher minimum wage along with the Earned Income Tax Credit boosted both employment and earnings for single women with children (though it cost less-skilled men jobs).

The International Monetary Fund, long an opponent of minimum wage laws, now asserts that a moderate minimum wage probably does not do much harm and may in fact drive economic growth. Their definition of moderate is 30-40% of the median wage.

3. “And it would do all of these things without even addressing the goal of reducing poverty.”

Economists on both the right and left agree that increasing the minimum wage reduces poverty, at least in the short term. The average reduction in poverty is 2% for every 10% increase in wages. These gains are not permanent: as cost of living increases over time, the increased wage loses purchasing power. Preserving the reduction in poverty would require a continual, incremental series of small adjustments, rather than the infrequent and large changes that are typical in the US. The current minimum wage is close to the adjusted purchasing power of the minimum wage for the past 30 years, but well below what it was in the 1960s, when it was the equivilent of about $9 per hour.

What the minimum wage does not and cannot address are the causes of poverty and the increasing rate of income inequality. Raising the minimum wage cannot produce better educated and more highly skilled workers, and it likely wouldn’t even move the needle on income inequality between the lowest wage workers and the highest wage workers, unless businesses increased wages across the board and absorbed the costs by freezing or reducing executive pay (which seems unlikely.)

Here’s one more statistic for you: the $147,700 the governor made last year is more than 900% higher than what a minimum wage worker makes in a year. Now, would you like fries with that?

We don’t raise wages in these parts, we cut them! With these comical scissors!