Tags: Holtz-Eakin | minimum wage | poverty | pay

Former CBO Chief Holtz-Eakin: Debunking Myth That Lifting Minimum Wage Solves All

Wednesday, 27 Nov 2013 09:48 AM

By Michael Kling

Raising the minimum wage is often touted as an easy answer for alleviating poverty. That painless solution is a myth, argues Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank.

"As it turns out, increasing the minimum wage actually hurts the working poor, is a windfall for affluent families, and raises the barriers facing the unemployed," he writes in an article for the Huffington Post.

Studies show that raising the wage would reduce employment and discourage hiring, as many minimum-wage employees work for small businesses, argues Holtz-Eakin.

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For instance, a study by the American Action Forum estimates that New York state's minimum-wage increase from $5.15 to $6.75 in 2006 reduced employment by more than 20 percent for low-skilled workers. California's recent minimum-wage increase to $10 per hour will result in a loss of almost 200,000 new jobs, the study claims.

Instead of helping those who need assistance the most, the minimum-wage increase will help those who need it least. Eighty percent of minimum-wage earners don't live in poverty, he says, pointing to Current Population Survey data. Close to half, or 46.3 percent, are teenagers and young adults living with their parents, and many of those parents have incomes of more than $100,000.

"It's hard to see how increasing the minimum wage," he says, "would combat income inequality when close to half of the beneficiaries are in the top 20 percent of earners."

A minimum-wage increase won't help the working poor. Just 6.3 percent of wage earners in poverty earn minimum wage, he argues. A study by economists at American University and Cornell University estimates that only 10.5 percent of the net benefits of a wage increase would go to those in poverty.

Lawrence Wittner, a professor of history emeritus at SUNY/Albany, counters that studies by economists conclude that raising the minimum wage has little or no impact on employment.

Higher-paid workers stay on the job longer, so they increase labor efficiency and decrease recruitment and training costs, Wittner writes in an op-ed for The Suncoast News in Tampa, Fla.

Plus, two-thirds of minimum-wage workers are employed by large businesses, which can easily afford higher wages.

Most minimum-wage workers are not teenagers, he says. People over the age of 20 comprise more than 88 percent of the 30 million minimum-wage workers. The wage increase would boost the economy by increasing consumer spending, as lower-income workers spend a larger portion of their incomes, he adds.

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