Heritage Expert: Raising Minimum-Wage as Welfare Reform Won’t Work

Advocates of increasing the federal minimum wage argue a minimum wage increase would result in fewer people relying on food stamps and other federal welfare programs.  The evidence suggests otherwise, but there are many examples recently of pundits and economists arguing for a minimum wage increase nonetheless.

The Associated Press reports an increasing number of food stamp recipients are working-age Americans, rather than children and the elderly, as was historically the case.  AP notes some economists have thought about a minimum wage increase as a means of helping these working-age Americans become independent of federal welfare programs:

President Barack Obama’s State of the Union address Tuesday night is expected to focus in part on reducing income inequality, such as by raising the federal minimum wage.

“A low-wage job supplemented with food stamps is becoming more common for the working poor,” said Timothy Smeeding, an economics professor at the University of Wisconsin-Madison who specializes in income inequality. “Many of the U.S. jobs now being created are low- or minimum-wage — part-time or in areas such as retail or fast food — which means food stamp use will stay high for some time, even after unemployment improves.”

Similarly, an opinion piece in The Gazette states:

Closing the gap between the rich and poor [by raising the minimum wage] will mean families with more money in their pockets, more profit for businesses, and less government spending. Everybody wins when everybody does better, but it has to start with a stronger middle class.

This may seem like a compelling argument, but what if raising the minimum wage discourages employers from hiring or keeping more minimum wage workers on their staff?  What if an increased minimum wage means fewer entry-level positions are available for disadvantaged or low-skill workers wishing to climb the economic ladder to support their families?

The Heritage Foundation’s James Sherk, an expert in labor policy, answers this important question:

Pay increases driven by increased productivity do reduce the welfare rolls, but artificial raises mandated by government fiat have unintended consequences. When the minimum wage rises, employers reduce hiring, and unemployed workers qualify for a lot more benefits than employed workers do. So raising the minimum wage puts both upward and downward pressure on the welfare rolls. Some workers win, but others lose.

So which effect matters more? The existing evidence shows that raising the minimum wage either has no influence on welfare rolls, or slightly increases them. 

In a testimony before the Senate Health, Education, Labor, and Pensions Committee, Sherk also explained minimum wage jobs help low-skilled workers gain the skills necessary to become more productive on the job.  Making such entry-level positions less available is akin to “sawing off the bottom rung of many workers’ career ladders.”  Employers consider the productivity and skill level of the workers they hire, and they will be less inclined to hire those workers whose productivity does not merit a higher income.

Lawmakers should consider that raising the minimum wage will harm many of the disadvantaged, low-income workers it is intended to help by making it more difficult for them to find work at all.

Please Share Your Thoughts