Posted by
I believe on Thursday, August 31, 2006 2:43:44 PM
Raising the Minimum Wage
Almost two months ago, Pennsylvania's Governor Ed Rendell signed Senate Bill 1090, which will raise the state minimum wage from the federally mandated $5.15 an hour to $7.15 in 2007. Pennsylvania now joins nineteen other states that have increased the minimum wage above the federally mandated wage in an attempt to combat poverty. Unfortunately for the low-skilled workers in Pennsylvania, the raise will do just the opposite.
When a firm hires a worker, the employer must determine if the employee's productivity worth is high enough for the benefits to outweigh the costs. Based on resumes, credentials, and interviews, an employer faces a difficult decision in determining which potential employee has the highest productivity worth. Moreover, not all workers are equivalent in production, and a firm will begin to see a drop in marginal output with each less qualified person hired. Before the minimum wage hike, an employer could hire someone if his or her productivity worth was above $5.15 an hour. With the current raise, an employee's productivity worth must now be higher than $7.15 an hour.
Now that the economics lesson is over, what does this mean? Simply put, low-skilled workers and small businesses owners are at even more of a disadvantage because the minimum wage increase crowds workers out of the labor force. In essence, raising the minimum wage could result in higher unemployment among low-skilled workers and potentially higher prices on goods. Especially with the influx of illegal immigrants entering this country, now is not the time to create a disadvantage for the low-skilled workers.
When politicians such as Rendell attempt to raise the minimum wage, they stick an innocent, middle-aged, single mother in their corner. At a Rendell press conference in 2005, single mother Dawn Brown said, “I know what it’s like facing a choice between paying the gas bill and having heat, or paying for my child’s immunization. Nobody should have to make that choice.”
Surely she’s right. No one should have to make that decision. Fortunately, only an extremely small percentage of our population does. An informative article by Rea S. Hederman, Jr., and James Sherk of The Heritage Foundation confirms only 6.1% of single mothers working fulltime are earning minimum wage. Will this 6.1% disappear once Congress raises the minimum wage? It’s actually possible the raise in wages may cause firms to cut back a single mother’s hours or fire her altogether.
Remember, it’s not guaranteed the raise alleviate poverty by facilitating the lowest tier of those earning minimum wages; the raise has a higher probability of affecting the average minimum wage worker whose family income is higher than $50,000.
Hederman Jr. and Sherk conclude, “Instead of raising the minimum wage, Congress should look at other ways to aid the working poor that actually focus on providing help to those who need it.” Please check out their full column here.