Minimum wage hikes hurt low-skilled individuals

A new study by the Employment Policies Institute (EPI) on the impact of Missouri's ballot initiative to raise the minimum wage shows that not only would a hike put low-skilled adults out of work, but over 80 per cent of the benefits would go to families that aren't poor.

According to labour economist David Macpherson of Florida State University:

The minimum wage hike would deliver a $44.4 million hit to Missouri businesses.

The resultant job loss translates to $15 million in lost income for affected employees.

Sadly, one-third of the over 1,500 jobs lost will be those of families earning less than $25,000.

This study reaffirms decades of economic research showing that mandated wage increases are a blunt and ineffective means of assisting low-income employees because of the simple fact that most minimum wage earners aren't poor, says EPI. Specifically:

Some 86 per cent of employees that will benefit from the hike either live with their parents, are part of a dual earning household, or don't have a family to support.

The average family income of those who will benefit is over $46,000 a year.

About 30 per cent of the benefits would go to families with annual incomes over $60,000 a year.

The mean net increase in income for families below the poverty level is only $23 a year.

Minimum wage hikes are an ineffective anti-poverty tool and deliver a particularly harsh blow to the very people they are intended to help, said John Doyle, EPI's managing director. A hike would not only cost jobs for Missourians with families to support, but over 45 per cent of the benefits would go to teens living at home.

Source: David Macpherson, The Effects of the Proposed Missouri Minimum Wage Increase, Employment Policies Institute, September 24, 2006.

For text: http://www.epionline.org/news_detail.cfm?rid=87

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 03 October 2006