This column by ACRU General Counsel Peter Ferrara was published on March 19, 2014 on Forbes.com.
Like all of President Obama’s ideas and enthusiasms, the minimum wage law is not a new idea. It was first adopted in 1938. It never has been the foundation of American prosperity, or even a good way to fight poverty. Indeed, it does more to increase poverty than reduce it.
Less than 3% of American workers are paid the minimum wage. These are not breadwinners supporting a family. Over half are between the ages of 16 and 24. Two-thirds (67%) of minimum wage earners work part time as secondary workers in middle class families earning an average of $53,000 a year, about the median income in America. Indeed, 62% of those earning the minimum wage are still enrolled in school.
About two-thirds (65%) of minimum wage earners live in families with incomes above 150% of the poverty line. Only 23% live in poverty. Just 4% of minimum wage earners are single parents supporting their family.
Perhaps most importantly, over two thirds of those in minimum wage jobs earn a raise above the minimum wage within a year. So those who earn the minimum wage are not stuck at that wage for long. As they gain skills, and their productivity increases, their wages rise, miraculously without an Act of Congress. Generally, they graduate from school and get a serious full time job.
With this factual background, you should be able to see why President Obama’s refrain since the State of the Union, “no one who works full time should ever have to raise a family in poverty,” is so misleading and manipulative, as a justification for raising the minimum wage. As discussed above, 67% of those who earn the minimum wage do not work full time, and 96% are not raising a family.
I have called this Obama rhetorical style “Calculated Deception,” which is shrewdly calculating what the average person does not know, and what the Democrat Party controlled media will not tell them, to take advantage of that ignorance. Obama’s policy stance proposing to increase the minimum wage is not about helping the poor. It is 2014 campaign rhetoric, meant to deceive you into voting for Democrat candidates this year, because you have been led to think that would help the poor and downtrodden.
But it would not help the poor and most vulnerable. Poverty in America has soared to all time record levels since Obama has been President. It is about Obama Democrats deceiving you into keeping them in power, even though that means more poverty for America, and the world.
Moreover, it is deceiving and misleading for another reason as well. Already under current law, with no help from Mr. Obama, if you work full time in America, you will not be poor. That is because already under current law, for anyone who works full time in America, the minimum wage, plus the Earned Income Tax Credit, plus the Child Tax Credit, equals or exceeds the poverty level for every possible family combination, including single mothers with children.
Full time work at the current federal minimum wage of $7.25 equals $15,080 a year. That exceeds the federal poverty level for 2014 for one single person living alone, at $11,670. In addition, that single person still qualifies for an earned income tax credit in 2014 of $496. Because the credit is “refundable,” the individual still gets the total credit in cash even if he or she is not liable for any federal income taxes, resulting in total income for the year for a single person alone of $15,576.
For a single person working full-time with one child, the Earned Income Tax Credit increases for 2014 to $3,305. The family would receive an additional $1,000 per year from the Child Tax Credit. Adding $15,080 for full time work at the minimum wage results in total income for the year of $19,385, well above the poverty level for 2014 for a single person with a child at $15,730.
With 2 children, the family gets $2,000 in child tax credits, and the Earned Income Tax Credit increases to $5,460. So with $15,080 for full time work at the minimum wage, that comes to $22,540 in total income. The poverty level for 2014 for a single mother with two children is $19,790.
With three children, the Earned Income Tax Credit for 2014 increases to $6,143, and the Child Tax Credit to $3,000. With full time work at the minimum wage, family income would total $24,223, while the federal poverty level for 2014 for a single person with three children equals $23,850.
Of course, if fathers would stick around and work full time and contribute to the welfare of their children, that would add at least another $15,080 a year to the above family income levels. That is why there is no poverty among two parent families with both parents working full time.
So President Obama’s job, if he wants to reduce poverty, is not to play manipulative politics about raising the minimum wage, but to adopt policies that would promote the creation of full time jobs. That is the first step on the ladder up the income scale, usually within a few months.
But raising the minimum wage would actually reduce full-time jobs for many low skill workers, and prevent them from getting on the income ladder at all. That is because raising the cost of low skill labor means employers will use less of it, and substitute more capital, or more productive, higher skilled workers, instead. Indeed, if Obama succeeds in raising the minimum wage to $10.10 an hour, employers will not hire anyone whose productivity is less than that legal minimum.
CBO estimated that such an increase would ultimately result in the loss of half a million jobs for the most vulnerable among us, the least skilled and least experienced workers, who would have the most to gain from starting work, gaining skills from experience, and rising up the income ladder. That would include many of Obama’s strongest political supporters, blacks, Hispanics, younger workers, women.
The income of these workers will then go down, as they will not have any job at all. They will lose as well the salary increase they would otherwise get within a few months of working, and gaining more productive skills as well.
Instead of raising the minimum wage, what is needed are policies that would increase the general demand for labor across the board at all income levels, which would mean more jobs and higher wages, for the middle class, working people, and the poor. That is the true foundation of American prosperity.
But doing that would require pretty much the opposite of everything Obama is doing. That would mean reducing tax rates on those with capital to invest in, expand and start new businesses, instead of raising taxes on them because by definition, they have money (and so they are “rich”). Such business expansion would create new jobs that would bid up wages, and provide the capital tools to make workers more productive, so those higher wages could be financed.
It would mean reducing unnecessary regulatory burdens and barriers, so that businesses would be freed to start up and expand as well. It would mean restrained monetary policies that would produce a stable or even strong dollar over the long run, so investors would know that they would be earning back dollars on their investments that are worth as much as the dollars they invested. It would mean less government spending and lower deficits, to reduce the drain on the private sector, leaving more money to start and expand businesses, and finance the necessary capital investment to create jobs and increase wages.
In short, it would mean the policies that would restore traditional, American, booming economic growth and prosperity. But that would require Obama to abandon his notion that what was needed was to fundamentally
transform America, a change he is unlikely to make. Instead, on Obama’s current course, voters are likely to fundamentally transform American politics, to liberate the economy from the perverse, stubborn, Obama Democrat stagnation.