The president's new emphases on income inequality, poverty and the minimum wage were front and center in his State of the Union address on Tuesday. In explaining his decision to issue an executive order to raise the minimum wage to $10.10 for federal contractors, and pleading with Congress to follow suit for all workers, the president exclaimed, "if you cook our troop's meals or wash their dishes you should not have to live in poverty."
But hold on – would raising the minimum wage pull many families out of poverty? The fact is that the president correctly diagnosed poverty and economic mobility as real problems in the United States, but his plan to increasing the minimum wage will simply fail to fix them.
Why? We have to recognize that family income, not wages, is what determines someone's economic well-being. It is true that, hypothetically, if someone worked a full-time job at the current federal minimum wage their annual income would be below the poverty line for families with two or more people. However, today that scenario simply does not occur, because minimum wage earners are often the second or third earner in a family.
The numbers are clear that the people who would benefit the most from an increase in the minimum wage are not those who need the most help. According to Current Population Survey data, 80 percent of minimum wage earners are not in poverty. Meanwhile, more than 50 percent of minimum wage earners are young adults and over a third are young adults who still live with their parents. For the young adults who live with their parents, their family incomes average more than $100,000, placing them in the top 20 percent of the income distribution. It's hard to see how an increase in the federal minimum wage would fight poverty and income inequality when the vast majority of minimum wage earners today are not the ones who need the most help.
Moreover, it is unfair to tout Costco, as the president did, for paying its employees above the federal minimum when most minimum wage employers are nothing like it. Rather than large, national corporations, the majority of minimum wage earners work for a local small business, with 40 percent having fewer than 50 employees. Meanwhile, most minimum wage employees work part-time, averaging 24 hours per week. This allows them to take classes, take care of their families and provide supplemental income. For example, in the restaurant industry nearly 80 percent of employees who earn minimum wage work part-time.
What about employment? In reality, having a job is the best path out of poverty, as only 7 percent of employed people are poor. That figure quadruples to 28 percent when the person is unemployed and looking for work. Raising the minimum wage, however, not only fails to address joblessness, but also impedes job creation. When employers are forced to pay more per hour for work, it prevents them from increasing hours, expanding their workforce and making new hires. A recent American Action Forum analysis concludes that California's recent minimum wage increase to $10 per hour will cost the state nearly 200,000 jobs. If every state enacted a $10 minimum wage, more than 2.3 million jobs would be lost nationwide. With 10.4 million people unemployed and looking for work, providing more work opportunities should be the national priority.
During his state of the union address, the president pointed out some genuine issues of our time. The current poverty rate of 15 percent is unacceptable for the wealthiest nation on earth and people are right to be frustrated for not seeing their earnings increase during the president's tenure. What the president is proposing will not fix the problem. Instead, the president should focus on real solutions that create good paying jobs and empower workers with the skills needed to move into better, higher paying jobs.
- Read Stan Veuger: The Tea Party Should Support Obama's Minimum Wage Executive Action
- Read Veronique de Rugy: The State of Barack Obama's Economy Is Weak
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