Liberal utopianism simply isn’t
cross the country cities continue to increase the minimum wage. Los Angeles County voted to raise the minimum for all workers to $15 per hour, and a New York wage board mandated that all fast-food workers in the state make at least $15 an hour.
Meanwhile, Sen. Bernie Sanders introduced a bill that would raise the federal minimum wage to $15 by 2020.
“It’s time to reduce poverty, expand the economy and create good-paying jobs,” he exclaimed.
But this begs a question: Would raising the minimum wage to $15 an hour actually help many families and individuals in poverty? In new research jointly published by the American Action Forum and the Manhattan Institute, the answer is a resounding no.
In reality, raising the minimum wage is not a clean victory for the poor. Yes, a minimum wage hike to $15 an hour would help millions of workers with higher earnings. But it would also hurt millions who would lose earnings because they cannot attain or retain a job.
And the kicker: Only a very small percent of any income gains would go to workers who are actually in poverty.
In our research, we specifically analyze the impact of raising the minimum wage on the low-wage workers the policy is intended to help. We project a range of job losses and net income gains.
Our research finds that raising the federal minimum wage to $15 an hour by 2020 would cost 6.6 million jobs. For hourly workers who earn between $7.25 and $15 per hour, this would result in a net income gain of $52.8 billion. If those earning just above $15 an hour also get a wage bump, the net increase in earnings would grow to $105.4 billion.
But how much of the additional $100 billion in earnings would help the poor? We find that only 6.7% of the increase in pay would go to workers living in poverty.
Meanwhile, 42.6% of the additional earnings would go to families with incomes one to three times the poverty threshold (that is, between $24,250 and $72,750 for a family of four), 36.1% would go to families with incomes three to six times the poverty threshold, and 14.7% would go to families with incomes over six times the poverty threshold.
As a result, twice as much of the increase would go to families with income over six times the poverty threshold ($145,500 for a family of four) as would go to families who are actually poor.
As lawmakers debate the merits of a $15 minimum wage, they need to understand that the negative consequences of the policy fall squarely on the low-wage workers the policy is intended to help.
In effect, raising the minimum wage simply shifts income from the low-wage workers who lose their jobs to the low-wage workers who remain employed. And it accomplishes this without effectively helping those most in need.
While advocating for a minimum wage hike may be good politics, any anti-poverty program that costs millions of jobs without actually helping those in need is simply bad policy.
Having a job is the best path out of poverty, as unemployed people are four times more likely to be poor than those who are employed. So, a more promising way to actually help low-income families would be to explore wage subsidies and other incentives that promote work, such as an improved Earned Income Tax Credit, the PRO wage proposal, a direct paycheck wage subsidy or other approaches.
Programs like these increase income and are designed to much more effectively help those who are in poverty. Rather than destroying jobs, these programs effectively promote employment by increasing the value of working without forcing employers to pay the cost.
As a result, they not only help families while they are in poverty but also provide them with the work experience and skills necessary for higher-paying jobs that will lift their families out of poverty.
Reducing poverty is a worthy goal. But raising the minimum wage and putting 6.6 million people out of work is not the way to achieve it.
• Holtz-Eakin, a former director of the Congressional Budget Office, is president of American Action Forum.
• Mone is president of the Manhattan Institute for Policy Research. The study “Counterproductive: The Employment and Income Effects of Raising the Minimum Wage to $15” can be found on their organizations’ websites.Follow enlightenedlbrl