Friday, July 28, 2006

Refuting The Minimum Wage Fallacy

Fire of Liberty
As I was reading news on the IDF's fight against terrorism and various other subjects, I overheard Oprah carrying on and on about the tragedy of folks in America barely getting by on federal minimum wage. Now while the show continued to do free ad for the DNC in raising the federal minimum wage(One of their Big Policies in 06) it failed to present the real facts which are far from what Oprah and here guests were proporting on the show. Well thankfully to the power of Google and the vast archives of various sites I dug up this great column by economist Walter Williams. Within this short column, Williams laid a fact filled knock-out on this "raise minimum wage" hot-air coming out of the HARPO studios in Chicago. While I recommend you read the whole column, I figured you'd like this following excerpt of Williams' deconstruction of Oprah's show on minimum wage:
The U.S. Department of Labor reports: "According to Current Population Survey estimates for 2004, some 73.9 million American workers were paid at hourly rates, representing 59.8 percent of all wage and salary workers. Of those paid by the hour, 520,000 were reported as earning exactly $5.15."

Workers earning the minimum wage or less tend to be young, single workers between the ages of 16 and 25. Only about 2 percent of workers over 25 years of age earn minimum wages.

According to the U.S. Bureau of Labor Statistics: 63 percent of minimum-wage workers receive raises within one year of employment, and only 15 percent still earn the minimum wage after three years. Furthermore, only 5.3 percent of minimum-wage earners are from households below the official poverty line; 40 percent of minimum-wage earners live in households with incomes $60,000 and higher; and, over 82 percent of minimum-wage earners do not have dependents.

The U.S. Department of Labor also reports that the "proportion of hourly-paid workers earning the prevailing Federal minimum wage or less has trended downward since 1979."

Another issue that's not often taken into consideration is there's a difference between what a worker takes home in pay and his total compensation. Employers must pay for legally required worker benefits that include Social Security, Medicare, unemployment insurance, workers' compensation, health and disability insurance benefits, and whatever paid leave benefits they offer, such as vacations, holidays and sick leave. It's tempting to think of higher minimum wages as an anti-poverty weapon, but such an idea doesn't even pass the smell test. After all, if higher minimum wages could cure poverty, we could easily end worldwide poverty simply by telling poor nations to legislate higher minimum wages.
I'd say that if folks would stop listening to folks like Oprah and various Democratic politicians who keep on touting about raising the minimum wage and more to Walter Williams and his sage economic advice they'd be well on their way down the road to financial freedom and break away from these fallacies on raising the minimum wage.

###Also check out these pieces here, here, and here by Thomas Sowell which points out why raising the minimum wage is a sure fired way of creating greater economic depredation amongst the poor.

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