Raising the minimum pushes low skilled individuals into even lower paying jobs
In 2019, we saw the growth of the movement called “the fight for 15”. This is a movement that calls for a raise in the federal minimum wage to $15. Proponents of the movement claim this is one way to take people out of poverty. And more recently, raising the minimum wage has come up as a way to help low-income workers in “essential services”.
Disregarding the potential negative effects on businesses that raising the minimum wage poses, there are other issues with claiming that raising the minimum wage takes people out of poverty. The main issue is that no evidence shows that raising the minimum wage takes people out of poverty. In actuality, raising the minimum wage has been shown to increase the number of people earning less than the minimum wage. This is largely due to the fact that job losses associated with higher minimum wage tend to fall on the poor and low-skilled.
Minimum wage leads to job loss and more people earning lower than mandated the minimum wage
One other thing that raising the minimum wage does is raise unemployment and push people into less paying jobs. As history has shown;
The Federal minimum wage was increased by 26.9% in 1990-91 and the number of workers employed below that minimum increased by 73.3%. The Federal minimum wage was increased by 21.2% in 1996-97 and the number working below minimum increased by 76%. The Federal minimum wage was increased by 27.2% in 2007-2008 and the number working below that minimum increased by 102%. The Great Recession explains some of the 102% increase in second-rate employment in the wake of the ill-timed minimum wage increases at that time. But there was no recession in 1996-97.
During the Great Recession, the federal minimum was raised twice from $5.15 to $6.55 in 1997-2008 while the unemployment rate for black teens rose from 24.2% in December 2006 to 48.1% three years later.
Many who lost jobs covered by the greatly increased federal minimum wages had to find other jobs once jobless benefits ran out. The number working below the federal minimum doubled from 1.3 million in 2006 to 2.6 million in 2009 and remained at 2.0-2.5 million during the frail 2010-12 recovery.
By 2009, when the unemployment rate hit 10% by October, the Bureau of Labor Statistics (BLS) estimated that for every worker paid the new federal minimum (980,000 of them), there were 2.6 others paid less. Nearly 2.6 million (2,592,000) were earning “below minimum wage.” Among just those workers paid by the hour (rather than salary), a mere 1.3% earned the new federal minimum wage in 2009, while 3.6% earned below minimum (4.7% in the South).
By 2019, average wages had risen 2.4% a year for ten years, so only 392,000 still earned the unchanged $7.25 federal minimum, but 1.2 million still earned less. For perspective, the Federal minimum wage was binding last year for only 0.26% of all nonfarm employees.
The cost of raising minimum wage outweighs the benefit
In 2019 the CBO (Congressional Budget Office) published a report analyzing the likely effects of raising the minimum wage to $15. The CBO estimated that while raising the minimum wage to $15 would lift 1.3 million Americans out of poverty, it would also lead to a loss of 1.3miliion jobs. This in addition to extra negative effects brought about by raising the minimum wage. In reality, the loss to workers as well as the economy from raising the minimum wage, would exceed the benefit.