This chart comes from a recent paper by Art Laffer. The blue line represents the percent of salaried workers that are paid the minimum wage or less. According to the most recent data, only 3% of those working for an hourly wage earn the minimum wage or less. Ask anyone you know to guess what percent of the workforce earns minimum wage, and I'll bet anything that they will answer with a number that is much higher than 3%. Those who earn the minimum wage are a vanishing breed, believe it or not. And that should make us proud.
The black line represents the minimum wage in today's dollars (i.e., adjusted for inflation). Note that it has stayed roughly constant for more than 20 years, while the percentage of workers earning that wage has dropped by almost 75%. It's not a coincidence, Art argues, that the huge relative decline in those earning minimum wage occurred during a period in which the federal government by and large pursued growth-oriented policies (e.g., declining tax rates). Giving incentives (lower tax rates) to those that create the jobs results in a huge increase in the number of unskilled workers that end up getting jobs, and most of them ended up getting jobs that paid more than the minimum wage since the total number of jobs has vastly increased over this 20+ year period. Incentives work much better than mandated wage hikes when it comes to alleviating poverty.
Art also explains the unfortunate consequences of the minimum wage:
While increasing the minimum wage is a seductive populist agenda item, it is incredibly harmful to the economy. All an increase in the minimum wage succeeds in doing is pricing people out of the job market, and particularly those people who have no ability to defend themselves, such as the poor, the minorities and the disenfranchised. The people who need entry-level jobs in order to gain the requisite skills to earn above the minimum wage are precluded from ever getting jobs in the first place if the minimum wage is too high.As Art further notes, it is a real shame that the minimum wage "will be 41% higher [on July 24th] than it was two years ago." This will only retard the recovery, since the economy will not be taking full advantage of the huge numbers of unemployed teens.
When times are good, the minimum wage is not a large concern. In economic parlance, the equilibrium price for unskilled labor is above the price floor set by the minimum wage. When the economy turns south, though, a high minimum wage is often above the market-clearing wage for unskilled labor, meaning there is a surplus of labor, which shows up as higher unemployment among the least qualified workers. And that certainly seems to be the case today. Teenage unemployment has surged from 15.1% in July of 2007 to 24.0% in June of 2009. Meanwhile, black teenage unemployment has risen from 26.4% in July of 2007 to 37.9% in June of 2009.
These are the unintended and very unfortunate consequences of misguided government policies such as are being pursued by the Obama administration.