Minimum Wages Going Up

There is growing pressure to increase minimum wages across the country. Inc.com reported last October about this trend. Now comes word from Law & Entrepreneurship about the impact that higher minimum wages is having on small businesses in that state.
“The Chicago Tribune cites some examples of small business proprietors that will be cutting workforce and hours and raising its prices in order to cope with the increases. Illinois may also be putting its small businesses at a competitive disadvantage as it is the only state in the Midwest that has a higher state minimum wage than the federally mandated minimum wage. Therefore it is making its small businesses located on the state boarder vulnerable to out of state competition which can utilize cheaper labor.”
Why are minimum wage laws bad policy, especially when it comes to poorer workers and small businesses? Richard Burkhauser from Cornell University argues that they no longer are having the intended social impact that was intended when minimum wages were first enacted.
“(O)nly one out of three of the working poor gained from the last federal minimum wage hike in 1996. The others were poor despite having higher rates because they either earned more than the minimum wage, worked part time or had large families. Of the $3.39 billion in additional wages generated by the last minimum wage hike, Burkhauser found that only 17 percent went to the families of the working poor. The other 83 percent primarily went to second or third earners whose families had income that was often well above the poverty line, indicated by the federal government to be $16,450 a year for a family of four.
“Teenagers are the group of workers most affected by the minimum wage, he said. When the minimum wage went from $4.25 to $5.15 in 1996, 44 percent of teenage workers benefited, but only 17 percent of those teenage workers lived in poor families. The majority, 51 percent, lived in families whose income was three or more times above the poverty line.
“‘Minimum-wage increases are extremely ineffective as a mechanism for reducing poverty,’ he said. ‘They were never very target-efficient and are even less so today.'”