Minimum wage, minimum help

Harvard Professor (Which means he's smarter than you) Greg Mankiw has a post about the minimum wage. The part of the post I want to focus on is a study published by the Employment Studies Institute (it's an institute so it must be imortant) showing that minimum wage increases miss their intended targets. Reading the full study, I can quibble with some of the findings, methods and charts but I am very intrigued by the overall findings, and the idea behind them (focusing on, and trying to determine who actually receives the benefits).

What the authors, Richard V. Burkhauser - Cornell University, Joseph J. Sabia - University of Georgia, tried to find was the percent of the total benefit ($18.26 billion) of a minimum wage increase that will hit the intended target, the working poor ($2.3 billion). Again, from just my quick reading of the paper, I can't honestly go into depth about the "facts" of their findings, but I love the concept; rather than go with popular opinion, or gut, thy to quantify the benefit to the intended party. Always a fan of this type of research.

The paper also says that a 10% increase in the minimum wage leads to a 1% decrease in jobs available.

I have to admit, the study backs up my own observations (so it must be right). Most of the people earning minimum wage are either kids early in their wage earning careers, or new hires. As far as kids go, unless there is a compelling reason that the kid will stay, why pay more? The kid will go back to school after the summer, or off to college, or just switch jobs to see what else is out there. Raises will not significantly alter any of those outcomes. But having to pay more may decrease the number of kids you can hire (but apparently only one percent on the aggregate - and lets be clear this is an aggregate. McDonald's probably won't alter their hiring, but smaller companies will, giving an edge to bigger companies - which I'm sure is what the progressives want). Another group is the elderly returning to work. Unfortunately there is no real incentive to pay them more either (but here an increase will definitely help - the study doesn't specifically address this sub-group, but paying them more will unarguably help them). My guess is that this is a very small set of the working population, and again raising the overall minimum wage is blunt way of helping a small group. Finally, the other class are adults finding their way back to the work-force. This can occur for a host of reasons, divorce, illness, job lay-offs, prison, whatever. With this group, earning the minimum wage is a transitory position. The employer does have an incentive to pay them more if they are performing because they have the potential to stick around. Furthermore, one thing that employers cannot long dodge is that you get what you pay for. Pay more, get more.

The study does repeatedly cite less than full time work as a reason for poverty. As will all extraneous information it only clouds the study (as an editor, I would have taken those passages out). They don't address why either the worker elects to work less than full time, or why the employer hires people for less than full time. The authors just throw it in, and it makes the study seem political, "People are poor because they don't work hard" as opposed to sticking to the thesis and the data that the minimum wage misses the intended target. Is part time employment due to other extenuating factors, child care, disability, etc or is it because employers in the area have shifted to part-time employment for financial reasons, and if so, does an increase in minimum wage only exacerbate that problem? Again, it was a throw-away part of the study, added no value, and only raised questions that the paper could not address.

One thing the study does not address, no fault to the study - this wasn't part of their target, is the effects on raising the minimum wage as a floor setting. In other words, if I make X% more than the minimum wage now, if it's increased how much of a raise do I expect to correctly reward me? Here is where you may see more benefit to those who are working for more than minimum wage but are still poor. Again, very blunt, and certainly not an argument for increasing the minimum wage, but I would be curious about seeing any data on the topic.

Minimum wage increases may have been a good tool at the time they were first implemented (1939), but the population, household make-up, and workforce have all changed dramatically since that time (Granted, the NEO-GOP is doing its best to bring those times back). Now it seems it is a rather blunt tool, whose main impact is dulled by the time it reaches it's target. Like all tools and strategies, they must be adapted to fit the actual circumstances to be effective. Tradition is irrelevant in dealing with reality, and there is no guarantee that what worked in the past will work today, or in the future. Personally, I would like to get rid of the minimum wage, and decrease the taxes that diminish take home pay and discourage employers from paying more.