by Ryan Young
Twenty-five states raised their minimum wages this year, but the federal minimum wage has been stuck at $7.25 per hour since 2009. Is it time to finally raise it? No. There are better ways to fight poverty.
Regional differences are the main reason Congress hasn’t raised the federal minimum wage in more than a decade. Different places have different costs of living. The cost of living in New York City is much higher than the cost of living in Missouri. Representatives of low-cost areas from both political parties know this, and mostly prefer to leave minimum-wage policy to state and local policymakers.
In fact, 30 states now have minimum wages above $7.25, with a national average of more than $11. Dozens of cities have their own minimum wages, which mostly track the local cost of living.
Another reason for leaving minimum wages up to states and localities is that when it’s set too high, officials can more easily scale it back. That happened this month when an emergency proclamation in Portland, Maine, accidentally triggered a $19.50 minimum wage, causing layoffs at local businesses. The city council fixed the mistake almost immediately, which would have been almost impossible under a uniform federal minimum wage.
Private employers are even more responsive. Large companies such as Amazon, Target, Costco, Walmart and McDonald’s all have starting wages well above local minimum wages and advertise this to potential employees. There are more than
10 million job openings right now, and employers are offering higher wages to fill those jobs.
As a result, few workers actually make minimum wage. Nationwide, fewer than 3% of workers make minimum wage, and, even then, many of them do not live in poverty. Roughly half of minimum-wage earners are under 25, and many live in middle-class households where they are not the primary earners — such as students living with their parents. Older minimum-wage earners are more likely to work part time so they can tend to family responsibilities or other obligations and are also not their households’ primary earners.
A policy intended to fight poverty should at least reach people in poverty. The Earned Income Tax Credit (EITC) does this. The EITC is essentially a negative income tax available only to people making below a certain income level.
Another superior alternative is occupational licensing reform, which has advocates in both parties. Today, nearly a quarter of all jobs require some kind of government license. In the 1960s, it was one in 20. Many occupational licenses keep people out of work on purpose. Existing businesses often design and enforce the requirements to keep out competitors. Licenses for hair braiders and interior decorators, for example, often require hundreds of hours of job-unrelated training, can cost thousands of dollars and often are not valid across state lines.
Bringing some sanity to occupational licensing would open up more and better jobs for millions of workers in ways a minimum wage never could.
So would cutting the Donald Trump and Joe Biden tariffs, which raise prices on hundreds of billions of dollars of goods by as much as 25% — during a pandemic, and while inflation is at a 40-year high. Since tariffs disproportionately target goods that eat up a larger part of low-income families’ budgets, such as food and clothing, getting rid of tariffs would instantly ease conditions for millions of Americans in poverty. Cheaper prices have the same effect as getting paid more.
Inflation is a regressive tax on the poor. It is now at 7%, the highest level since 1982. Too much money is chasing too few goods and services. The Federal Reserve needs to rein in runaway money supply growth, and Congress needs to cut its deficit spending, which went into hyperdrive in response to the pandemic. They should also unclog supply chain restrictions on ports and trucking and clean out excessive regulations that also raise prices.
Policymakers have plenty of ways to fight poverty. The minimum wage is not one of them, given its poor targeting and stark tradeoffs. They may not sound as rousing at a protest rally, but the EITC, occupational licensing reform, repealing tariffs, reducing inflation and addressing overregulation are all better ways to help people who need it the most.
