President Barack Obama delivered his State of the Union address last night and in it, he called for raising the federal minimum wage to $9 an hour. “This single step would raise the incomes of millions of working families,” he said.
This an appealing sentiment, but Prof. David Neumark’s 2012 study for the Show-Me Institute, “Should Missouri Raise Its Minimum Wage?” found that “research for the United States on state minimum wage increases generally fails to find evidence that minimum wages help the poor.” This is because the minimum wage targets low-wage workers and not low-wage families.
In 2008, 12.7 percent of all workers earning the federal minimum wage ($7.25) were in poor families, while 44.6 percent of workers earning less than $7.25 were in families that earned more than three times the poverty line. In their book “Myth and Measurement: The New Economics of the Minimum Wage,” authors David Card and Alan B. Krueger admit that the minimum wage is a “blunt instrument” for reducing poverty.
Not only would raising the minimum wage be ineffective in helping poor families, it would also mean that many businesses will hire fewer workers because of increased labor costs.
On the surface, increasing the minimum wage is an attractive idea. However, doing so does not help those who need it. The market should set wages, not the government.