James d. Gwartney

Video:
Minimum Wage Washout
Many supporters of a higher minimum wage also believe that it will reduce the
poverty
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rate. At first glance, this appears to be true, but examination of the data indicates it
is highly questionable. There are several major reasons why this is the case. Take the figures
for the United States, for example. The bulk of minimum wage employees—about 80 percent
—are members of households
(?)
with incomes above the poverty level; one-third live in
households with above average incomes. Half of the minimum wage workers are between the
ages of 16 and 24 years and most of them work part-time. Only 1 out of every 7 minimum
wage workers (about 15 percent) is the primary earner for a family with one or more children.
Thus, the typical minimum wage worker is a single, youthful, part-time secondary worker in a
household with an income above the poverty level. Second, there will be unintended effects of
the higher minimum. Employers will take steps to control (or compensate for) their higher
wage costs. These will include a reduction in hours worked, fewer training opportunities, a less
convenient work schedule, and fewer fringe benefits. Further, many of the minimum wage
workers are also consumers of products impacted by the higher minimum wage. These workers
will have to pay higher prices for goods such as fast food as will other low-income consumers
such as retirees. Thus, the actual compensation of the minimum wage workers will increase by
less than the expansion in the minimum.
(26)
 Finally, more than half of the poor families in the
United States do not have anyone in the labor force, and therefore a higher minimum wage will
not help them.
The evidence regarding minimum wages in less developed countries is mixed but tends
to show that minimum wages that are high enough to have an impact may raise wages in the
formal economy at the cost of driving a large number of workers out of the formal economy
into the informal sector, where earnings are lower and much more highly variable.
When thinking about the effects of the minimum wage on youthful low-skill workers, it

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is important to consider the impact in both the short and long run. Work experience provides
youthful workers with an opportunity to develop self-confidence, good work habits, skills, and
attitudes that will make them more valuable to future employers. This opportunity is
particularly important for high school dropouts and others with weak educational backgrounds.
Unless these young people are able to prove their value to employers and develop on-the-job
skills, it is unlikely that they will be able to move up the job ladder and realize higher earnings
in the future.
The value of work experience and skill development is widely recognized in the case of
those with higher levels of education. For example, college students often take unpaid
internships—that is, they work for a zero wage—with government agencies and nonprofit
organizations in order to gain experience that will enhance their future earning opportunities.
Indeed, members of the United States Congress advertise unpaid internships to college
students by pointing out the benefits of work experience in beginning-level jobs. Yet many of
these same politicians support minimum wage levels that reduce the opportunity of
disadvantaged youth to acquire the work experience and on-the-job training that will enhance
their future employment prospects. This adverse impact on low-skill youth is almost always
ignored, except by economists. Nonetheless, it is an important unintended secondary effect of
minimum wages that adversely impacts the long-term employment of young people,