Minimum Wage History of Minimum Research Proposal

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Only 2.1% of minimum-wage workers belong to a union, versus 12.0% of the overall working population. Nonetheless, labor unions fight passionately for a higher minimum wage (Sherk).

When the minimum wage rises, it becomes more expensive to hire unskilled workers. This makes the decision to employ highly paid and highly skilled workers, instead of unskilled workers, more attractive to businesses, and so businesses want to hire more skilled workers (Sherk).

With skilled workers in greater demand, their job opportunities and earnings rise. Unionized workers tend to be more highly paid and highly skilled than the population as a whole and, so, benefit from this effect. Raising the minimum wage could actually raise the earnings of union members who compete with minimum wage workers by 20 -- 40%. Meanwhile, non-union, low-skilled workers' earnings actually fall due to reduced working hours and fewer job opportunities (Sherk).

So the fact that unions are for higher minimum wages is most likely due to self-interest and securing an advantage for their members over low-skilled workers in the workplace.

Impact on Poverty

Many groups dedicated to fighting poverty, such as the U.S. Conference of Catholic Bishops, support raising the minimum wage. This makes sense, because many people support raising the minimum wage under the well-intentioned but mistaken belief that it would reduce poverty (Sherk).

A study by economists Richard Vedder and Lowell Gallaway shows convincingly that minimum wages, because of inefficient targeting of the poor and unintended adverse consequences on employment and earnings, are ineffective as an antipoverty device. The report relies on an impressive array of empirical evidence showing that, however one views the data, in the U.S., state and federal minimum wages have not reduced poverty (Gallaway and Vedder).

The study also assesses the effects of minimum wages on poverty among full-time workers who worked for an entire year. If minimum wages were to reduce poverty, the effect is most likely to show up among this group.

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This is because, if such fully employed workers keep their jobs and maintain their hours, they are likely to see a much larger effect on their annual income than those who are not fully employed (Gallaway and Vedder).

However, the study did not find a statistically significant poverty-reducing effect for full-time workers. It is likely that some of these workers saw little or no wage gain because their wages were above or in the upper end of the range affected by the minimum wage. Also, any gains to full-time workers in poverty may have been offset by employment losses (either in terms of jobs or hours) by other household members or loss in overtime pay to the full-time workers (Gallaway and Vedder).

The economists also experiment with different poverty definitions, including one recommended by the National Academy of Sciences, and other definitions that use different income cut-off levels. They found that the national minimum wage had no statistically significant negative relationship to the rate of poverty regardless of how poverty was measured (Gallaway and Vedder).

Because some states have minimum wage laws requiring higher wages than the federal law, the study also considered the poverty rates in such states. Specifically, they examined whether, in states with state minimum wages above the national level, poverty rates were lower than in states with the national minimum wage in effect. Their analysis revealed no statistically significant poverty-reducing effect of the higher state minimum wages.

This analysis also implies that states with lower minimum wages do not, as a result, experience higher rates of poverty.

The federal minimum wage has had no statistically significant negative or positive relationship to the rate of poverty (Gallaway and Vedder)......

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