The wages of gamesmanship

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Article Highlights

  • President Obama employed an old weapon against Republicans in his #SOTU address: the minimum wage.

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  • The idea that minimum-wage workers are predominantly parents living close to poverty is a common myth.

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  • In 2012, 2/3 of workers making minimum wage or less were part-time workers, & a bit over 1/2 were under age 25.

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This article appears in the March 25, 2013 issue of National Review.

President Obama employed an old weapon against Republicans in his State of the Union address: the minimum wage. The president’s humble objective was to make sure that “no one who works full time [has] to live in poverty.” That goal is very appealing, and likely explains why a majority of Americans support higher minimum wages.

But they should not. Indeed, President Obama’s own statement helps illustrate why. He begins with the phrase “no one who works full time”—giving the impression that the minimum wage will affect only full-time workers, whose lives will be improved by the increase. This phrase deflects listeners’ attention from the true economic consequences of the minimum wage by excluding from view those who lose their jobs because of the minimum wage, fail to be hired because of the minimum wage, or have their hours cut back because of the minimum wage.

The president was intentionally reinforcing the myth that minimum-wage workers are predominantly parents living close to poverty. But let’s look at the facts. In 2012, almost two-thirds of workers making the minimum wage or less were part-time workers, and a bit over half of all minimum wage-or-lower workers were under the age of 25, many of them students living at home with their parents.

Those two pieces of information suggest that common political rhetoric about the minimum wage is misleading. An analysis from the left-leaning Economic Policy Institute, represented in the nearby chart, gives a fuller picture of how an increase in the minimum wage would affect workers in the U.S.


In 2013, the U.S. federal poverty line, which varies according to family size, was $23,550 for a family of four and $11,490 for an individual. In the EPI analysis of workers who would be affected by an increase in the minimum wage to $9, only 25.7 percent live in households making under $20,000. Almost half belong to households making over $40,000, and almost 30 percent of workers who would be affected live in families with incomes above $60,000.

Simple economic logic, supported by most of the available research, suggests that the minimum wage reduces employment significantly. The wage increases take-home pay for those who do not lose their jobs, but reduces it to zero for those who do. In other words, it takes money away from some poor people (those who lose their jobs), gives money to some poor people (those who don’t), and gives money to some better-off people, too.

How does it all balance out? A separate study by economists Joseph Sabia of San Diego State University and Robert Nielsen of the University of Georgia explored the impact of the minimum wage on the welfare of the poor. They concluded that the minimum wage is spread out so far up into the income distribution that there is “no statistically significant evidence that a higher minimum wage has helped reduce financial, housing, health, or food insecurity.” The authors couldn’t find a beneficial effect of the wage on the welfare even of those most likely to benefit from it.

If a higher minimum wage reduced poverty, one might still question the wisdom of asking some poor people to give up their jobs so that others may have their lot improved. Although that seems like an odd trade, there might be some defense of it. But since the higher minimum wage doesn’t reduce poverty, President Obama’s proposal is indefensible, and even a little bit sinister. He apparently thinks the increased suffering of those unfortunate enough to lose their jobs as the wage jumps is a small price to pay to make Republicans look heartless.

-Kevin Hassett is the John G. Searle Senior Fellow and Director of Economic Policy studies at AEI

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About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
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