Congress Watch: A Closer Look at the Minimum Wage

(Joe Jansen has a decade and a half of experience working as a staff member on Capitol Hill.  He has worked in almost every legislative capacity in both the House and Senate. Joe will be a frequent contributor to TPA’s blog.) President Obama, in his State of the Union address, said, “But Americans overwhelmingly agree that no one who works full time should ever have to raise a family in poverty.”  To address the issue, he urged Congress to raise the federal minimum wage to $10.10 per hour.  The Senate will consider legislation to raise the minimum wage in the coming weeks.  But is an increase the most effective way to lift Americans out of poverty?

Established by the Fair Labor Standards Act of 1938, the federal minimum wage establishes a floor for the hourly wages of most American workers.  State and local governments are free to set a different rate and many have done that.  Twenty-one states and the District of Columbia have set their minimum wage higher than the federal rate (currently $7.25 per hour).

In anticipation of a congressional debate over legislation to increase the minimum wage, the Congressional Budget Office (CBO) looked at what effects such an increase would have on employment and family income.  Its report, released last week, concluded that an increase would have “two principal effects on low-wage workers.”  First, most would receive higher pay.  Second, some low-wage workers would lose their jobs.  CBO projects that some 500,000 workers would lose their jobs due to an increase in the minimum wage.

To be sure, an increase in the minimum wage would benefit many Americans, leading to higher salaries and increased income for some.  But, an increase is not likely to make much of a dent in the poverty rate.  That is because earning minimum wage is not likely to be the reason an individual lives in poverty.  Unemployment is.

According to U.S. Census Bureau statistics, 46.5 million Americans lived in poverty in 2012.  Among individuals who worked full-time approximately 3 million (2.7%) fell below the poverty line.  The numbers get worse as employment falls.  8 million workers living in poverty worked part of the time.  And, 21 million Americans living in poverty were unemployed.

The implication of the Census Bureau’s statistics is quite clear.  The last thing Congress should do is pass legislation that will actually lead to fewer jobs.  The best path to help lift more Americans out of poverty is through economic growth and job creation.