PROOF Raising the Minimum Wage Can’t Reduce Poverty
Authored by: Matt Palumbo
Socialist Senator Bernie Sanders repeated a quip a number of times in defense of a $15 an hour minimum wage on the campaign trail back in 2015 and 2016; that “nobody who works 40 hours a week should be living in poverty.”
It’s not even a particularly left-wing statement, and people of all ideological stripes can probably resonate with it a bit. After all, we’re against moochers, but someone that’s poor despite working 40 hours a week can hardly be considered a moocher.
So here’s the problem with turning Bernie’s statement into an argument for hiking the minimum wage; poverty is not a wage problem, it’s a work problem. After all, the poverty threshold is low enough where someone working 40 hours a week, 50 weeks a year to be above it (as they’d earn $14,500).
So how would one find themselves in poverty? Having a child, and thus an extra person in the household (who obviously isn’t generating income, but consuming it) is one obvious answer. But there’s an even bigger reason why – not actually working full time.
In 2015, only 11 percent of (working age) people in poverty worked full time. By contrast, 63 percent of those in poverty don’t work at all. Of full time workers in America, only 2 percent live in poverty (compared to 32 percent of the unemployed). If we look at those with families, the numbers become even more stark. For instance, in 2011 only 0.3 percent of families in poverty worked an hourly job earning the minimum wage.
The minimum wage can’t help people who don’t work – and every conservative and their mother is aware that hikes in the minimum wage increase unemployment among the most vulnerable, but those aren’t the only consequences. Minimum wage hikes also reduce hours worked, and decrease the labor force participation rate.
A study published in 2001 at North Carolina State University by Dr. Walter J. Wessels looked at past minimum wage hikes, finding that hikes from 1978-1981, finding that they reduced teen labor force participation by 3.62 percentage points, 1990-91 hikes by 2.07 percentage points, and 1996-97 hikes by 1.31 percentage points. I’m using the youth as a proxy for the low-skilled, and you can see the effects for yourself graphically:
And in the case of reduced hours, that can offset the benefits of a minimum wage hike entirely. Take Seattle as an example, which was one of the first cities to pass a $15 an hour minimum wage ordinance in 2014 (that took full effect on January 1, 2018).
That’s the exact wage Bernie would like to see to lift all our full time workers out of poverty, but a study conducted by the University of Washington found that the law reduced hours by 9 percent, which caused wages to fall on net by 6 percent. And the kicker? That study was conducted when Seattle’s minimum wage had “only” risen from $10.50 to $13 an hour, as the $15 wage was phased in gradually. And despite that $2.5 an hour raise at the time of the study, workers were still $125 a month worse off.
And that’s for the people who kept their jobs. Things were much worse off for the 5,000 workers who lost their jobs entirely.
In response, Seattle’s legislature, which commissioned the study, promptly fired all the University of Washington researchers for making the mistake of stumbling upon the truth.
Liberals treat poverty as a wage problem, when it’s a work problem. And the best way to get people working is to ensure that they’re not priced out of a job.