Monday, February 24, 2014

Minimum Wage Outcomes

While it seems like raising the minimum wage is the right thing to do, it is probably a woefully inadequate intervention for improving the living standards of the population many believe it will benefit.  A recent CBO analysis projects the effects for two levels of a minimum wage hike to either $9.00 or $10.10 (it's $7.25 now).  Here are some bullets from the $10.10 scenario:  
  • Many low-wage workers would see an increase in their earnings.
  • Some of the people earning slightly more than $10.10 would also have higher earnings.
  • Increased earnings for low-wage workers would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold.
  • Some people will became jobless because of the minimum-wage increase.
  • Business owners and consumers will face higher prices.
Analyzing policies based on economic realities complicates simple realities.  And it may be one explanation for the prevailing prejudice liberals have about economists -- that they're all Republicans.  At $10.10 per hour, assuming that the number of hours in a typical work year is 2080, a minimum wage worker could expect to earn an annual income of $21,008, that's before taxes and don't forget health insurance premiums.   I can't see how anyone could manage a decent standard of living on such a salary without subsidies from somewhere and forget it if they're responsible for any dependents.

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