Study: Minimum Wage Hike Would Do Little to Alleviate Poverty

Wealthy teens more likely to benefit than working poor

December 3, 2013

A minimum wage increase will benefit upper class teens more than workers in poverty, according to a new study.

A report issued by the American Action Forum found that congressional proposals to raise the minimum wage to $10.10 per hour would affect "only 7.8 percent of all hourly-paid workers in poverty [who] earn at or below the minimum wage."

The greatest beneficiary could be teenagers living with their parents, who make up about 37 percent of minimum wage workers. Many of these minimum wage earners come from privileged backgrounds.

"Those families with teenagers earning minimum wage had average incomes of $103,964.30, well above the 2011 national average of $75,203.78," the report found. "Instead of combating income inequality, an increase in the minimum wage may actually enlarge the income gap by limiting earnings from those who need them most (the jobless) and directing them to those who need it least, the top 20% of earners."

Doug Holtz-Eakin, head of the American Action Forum and a former Congressional Budget Office director, said that those living below the poverty line are more likely to be unemployed, rather than earning a minimum wage. As a result, they are unlikely to benefit from the proposed increase.

"Minimum wage jobs are meant to be stepping stones, in which workers find internal promotions," he said. "The key to not being poor is work. You have to have a robustly growing economy with job opportunities and we haven’t had that over the past five years."

President Barack Obama called for a $9 minimum wage in his February State of the Union address and Democrats in the Senate responded with a $10.10 wage. Holtz-Eakin said such measures will not alleviate the task of bringing people out of poverty or ending inequality, but could widen the gap between the working poor and the unemployed as increased costs force businesses to curb hiring.

"If you raise the minimum wage and stop someone from getting hired, you’re transferring wages from the unemployed to someone already working," Holtz-Eakin said.

The report comes in the midst of mass demonstrations from worker centers and other union allies to raise wages at some of America’s largest employers.

Demonstrators organized by the United Food and Commercial Workers lined up outside of Walmarts on Black Friday, calling on the company to raise wages. Other union-backed groups, including Fast Food Forward and Fight for 15, are organizing similar protests outside of fast food chains across the country on Thursday, calling for $15 hourly wages.

Business groups contend that the protests are aimed more at union organization than benefitting employees, since the wage requirements could hinder further hiring and job growth.

One key ally in the fast-food strike is the Restaurant Opportunities Center (ROC), a worker center organized as a non-profit. ROC Exposed spokesman Mike Paranzino said that the worker centers are designed to skirt labor laws, which limit union protests but not those of nonprofit groups.

"They’re pushing the envelope at a minimum because they’re behaving as a union," Paranzino said.

The Freedom Foundation, a Washington state-based free-market think tank, found that Working Washington, a group funded by the Service Employees International Union, organized recent fast food protests. The union has been accused of paying protestors who attended demonstrations over the fall and summer.

"The fact that the SEIU, through Working Washington, is paying workers to protest calls into question the validity of similar union-organized minimum wage protests nationwide," the Freedom Foundation reported.

Higher minimum wages, whether they come from union pressure or federal law, are unlikely to address the central issue of poverty in the United States, according to Holtz-Eakin.

"That money doesn’t come out of nowhere—it would hurt job growth, there’s no question about it," he said. "You would raise their [business] costs and they would respond by cutting back on hours, or the workers they have, or they’d economize on quality of the product."

Published under: Minimum Wage