Raising the Minimum Wage Hurts the Poor

The first step in helping America's poor is to cut back on costly regulations that burden job creators.

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Mark Adams is a research fellow at the Mercatus Center at George Mason University.

When they respond to the president's plea to help hardworking Americans by raising the minimum wage, Congress should follow the president's intent and not his policy. Government regulations, including the minimum wage, do little to help the poor. If Congress and the president want to help the poor, they should start by eliminating regulations that redistribute away from the poorest families.

The minimum wage is more likely to hurt the people it is supposed to help by making it harder for them to find jobs.

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Minimum wage workers tend be young and unskilled. Less than half of workers under the age of 25 are currently employed and many rely on low paying opportunities to get their first break. The majority will earn a raise within a year, but they currently lack the experience and skill to compete for higher paying jobs. Raising the minimum wage makes it harder for these inexperienced workers to find a job, because businesses will either eliminate positions or choose to hire someone with more experience at the higher mandated wage. Minimum wage jobs could also be a pathway to retraining for workers facing a mismatch between their skills and available openings. A higher minimum wage would limit such opportunities, and that's particularly dangerous during this historically slow recovery

If policymakers really want to help the poor, they should seek to reduce the barriers to job creation, instead of adding to them by hiking minimum wage. Job creators are already tangled in a forest of red tape: over 170,000 pages of regulations from the federal government alone. Complying with these regulations is disproportionately burdensome for the small businesses that create the majority of new jobs.

The cost of regulation is not limited to business. Perversely, this burden falls disproportionately on low-income families through lower wages and higher prices to consumers.

[See a collection of political cartoons on the economy.]

Wealthier households who are willing to pay more for higher quality products and services actually benefit the most from regulation but don't pay the full cost, which is spread across all households. For example, one recent Department of Transportation rule requires that every car have a rear view camera, currently an option only on luxury vehicles. The benefit largely goes to the wealthier families who want the feature, but the cost to standardize this feature is incurred by everyone.

It's not just rear view cameras. Poorer households end up spending a bigger portion of their income to pay for products they wouldn't otherwise have purchased once we consider the cumulative impact of regulations.

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Diana Thomas, an economist at Utah State, found that health and safety regulations can cost poorer families as much as six to eight times more as a share of income than wealthier families. One rule in many states forces parents who place their child in daycare to pay for child-size toilets, which increases the costs of providing child care, and hence what parents pay for the service. High child care costs make it harder for parents to afford to go to work. And when they do, it directly reduces the money they can spend on measures that they could take to make their family safer and healthier. Just moving to a better neighborhood halves the chance of a child being injured. Instead families must spend that money on regulations that provide one-fifth the health and safety benefits for each dollar spent that low income families could have achieved through their own decisions.

The first step in helping America's poor is to cut back on costly regulations that burden job creators and leave the poorest families worse off.

  • Read David Brodwin: What is a Sustainable Tax Policy?
  • Read Fran Tarkenton: National Labor Relations Board Hurts Job Creation
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