Saturday, November 12, 2005

A Perennial Issue

The Minimum wage currently stands at $5.15, for a full time employee this works out to $10,712 per year, well below the poverty line.

Wikipedia, as usual, provides us with a sparkling overview of the topic:

This paper by the UAW attempts to rebutt several critiques leveled by economists. Excerpt below.

• Most minimum wage workers are adults; 87% are over age 20.

• People don't quickly move out of minimum wage jobs. Workers age 25 to 54 have a 38% chance of getting stuck in a low-wage job even after 3 years ("No Way Out"”, Center for Economic and Policy Research).

• In 2002, on average, minimum wage workers earned 68% of their total family income ("“No Way Out", Center for Economic and Policy Research).

• From 1950 to 1982 the minimum wage was usually 45% of the average hourly wage in the U.S. In 2004, the average hourly wage was $15.67; by the 45% standard, the minimum wage should have been $7.05. That wage would lift a single parent with one child out of poverty but still leave a parent with two kids below the poverty line.

Many suggest that raising the minimum wage would be largely negated by the resultant rise in retail prices.

I suggest that while prices would undoubtedly rise to some degree, it would be mitigated by robust price competition. The incentive to keep prices competitive would force companies to cut costs in other areas, something they're doing anyway, minimum wage laws simply decide where those efficiencies will be spent.

Thoughts on minimum wage increases?