Minimum Wage: Q & A - Commonwealth Foundation

WHO ARE MINIMUM WAGE WORKERS IN PENNSYLVANIA?

Out of approximately 5.64 million employed workers in Pennsylvania in 2004, approximately 89,000—or 1.6% of all employees—are at or below the federal minimum wage.
Only about 6.0% of all workers in Pennsylvania earn less than $7.15.
Many minimum wage workers earn gratuities, sales commissions, or other non-hourly income (33% of minimum wage earners work in “Leisure and Hospitality” and 25% work in Retail Trade).
Less than 32,000 workers earning less than $7.15 per hour are the sole earners in households supporting children, representing less than 10% of those affected by the minimum wage increase and only 0.6% of all employed workers in Pennsylvania.
Nearly two-thirds (65%) of minimum wage earners are part-time workers, more than half (56%) are under 24 years old, and 45.9% still live with their parents.
Most minimum wage earners live in families that are non-poor.

Family Income of Minimum Wage Earners
Less than $12,500 12.9%
$12,500 to $24,999 17.0%
$25,000 to $39,999 20.6%
$40,000 to $49,999 10.5%
$50,000 to $59,999 9.6%
$60,000 to $74,999 11.4%
$75,000 or more 18.0%
Median Family Income $37,071

Source: BLS – Current Population Survey ORG

WILL A SINGLE WORKING PARENT BENEFIT FROM RAISING THE MINIMUM WAGE IN PENNSYLVANIA?

While the single parent working 40 hours per week, 52 weeks per year could see their annual income rise by about $4,000 if the minimum wage is increased by nearly 40%, some of this increase would be offset by lost government aid.
A single-parent with two children working full-time and earning $5.15 an hour with no additional income is eligible for over $21,000 in federal and state aid: $4,020 in Food Stamps; $4,290 on the federal Earned Income Tax Credit; $1,000 in TANF direct payments; health care coverage under Medicaid (average Pennsylvania benefit of $8,316 in 2002); Housing Choice Voucher from HUD (estimated value of $4,200); reduced school lunches; and low-income energy assistance.

WHO LOSES BY RAISING THE MINIMUM WAGE IN PENNSYLVANIA?

An estimated 10,000 workers would lose their jobs if the minimum wage were raised to $7.15 per hour—at an income loss of about $8,500 each per year per worker.
Nearly 14% of those laid off (1,388 workers) would be from very-low income households (those earning less than $12,500 per year).
Raising the minimum wage would cost the economy approximately $262 million annually in additional labor costs (about $850 per retained minimum wage worker).
Government-mandated increases in labor costs will undoubtedly be passed on to consumers in higher prices or to employees in the form of fewer work hours or reduced benefits.
The total cost of the proposed minimum increase would be approximately $350 million annually in lost income for displaced workers and higher labor costs to employers.

THE SANTA FE EXPERIENCE

The City of Santa Fe, New Mexico increased its minimum wage to $8.50 per hour—an increase of 65%. Research conducted by Dr. Aaron Yelowitz of the University of Kentucky found that the negative effects of the wage hike were concentrated on the least-skilled members of the economy—the very individuals the increase was intended to help. Dr. Yelowitz found:

The likelihood of unemployment for employees in Santa Fe went up by 3.3% and the average weekly work time declined by 1 hour.
The likelihood of unemployment for low-educated workers was even higher at 8.3%, while their work time fell by 3.2 hours per week.

MINIMUM WAGE POLITICS, BAD ECONOMIC/WELFARE POLICY

Raising the minimum wage is neither sound economic policy nor an effective way to help alleviate poverty.

Economists David Card and Alan Krueger, whose work is being used by minimum wage proponents, concluded that “the minimum wage is evidently a ‘blunt instrument’ for redistributing income to the poorest families.”

Gov. Ed Rendell, now a proponent of artificially increasing labor costs in Pennsylvania, recognized in 2002 that “Right now Pennsylvania businesses carry a very high tax burden compared to states we compete with. We’re [a] very heavily taxed business state…. To raise the minimum wage in just Pennsylvania, particularly for small businesses, would add another premium for doing business in the state.”

The reality Harrisburg lawmakers must face is that Pennsylvania’s poor business climate has not improved nor have the laws of economics that govern labor costs been repealed. But even worse, an artificial increase in labor costs in Pennsylvania will harm the very workers who minimum wage supporters want to help. Low-income, low-skilled citizens will be the very first casualties if minimum wage politics trumps economic experience.

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