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Home Publications Blogs Beat the Press L.A. Times Reports Low-Paid Workers Don't Have Much Money Even After Increase in the Minimum Wage

L.A. Times Reports Low-Paid Workers Don't Have Much Money Even After Increase in the Minimum Wage

Tuesday, 27 May 2014 14:11

The Los Angeles Times had a news article telling readers that workers in Connecticut are still having a tough time making ends meet even after the minimum wage in the state was increased by 45 cents to $9.15 an hour at the start of 2014. The headline of the piece, which reflected the content of the article, read:

"In Connecticut, some minimum-wage workers say raise has not helped much."

The piece included comments from economists who have criticized the minimum wage, saying both that it would cost jobs and that it is an ineffective way to reduce poverty. The piece did not present the views of any of the large group of economists who have studied the minimum wage and found that it had little or impact on employment.

Nor did it discuss the views of any economists whose research indicated the minimum wage could have a substantial effect in reducing poverty. The Congressional Budget Office agreed with this assessment in the analysis of the minimum wage it released earlier this year. The article instead touted increases in the Earned Income Tax Credit (EITC) as a preferred way to address poverty. The article ignored evidence that the EITC lowers wages for low-paid workers who do not qualify for the credit.

The article tries to present a case that the minimum wage is already costing Connecticut workers jobs:

"Employment growth in Connecticut has lagged behind the nation since December, data show. Nationally, employment grew 0.62% from December through April, while employment in Connecticut fell 0.19% over the same time period.

"Much of that drop-off was related to the elimination of 10,900 jobs in January, the month employers had to start paying 45 cents more. In the previous three years, Connecticut had added an average of 4,000 jobs over the same time period."

Actually Connecticut has been lagging the country in employment growth throughout the recovery. The country as a whole had created jobs at a 1.1 percent annual rate from the end of the recession in June 2009 to December of 2013. Connecticut had created jobs at just a 0.7 percent annual rate.

Job losses are also not unusual in erratic state data. According to the Bureau of Labor Statistics Connecticut lost 9,000 jobs from June of 2013 to September of 2013.

The piece also implies that most minimum wage workers are teenagers who are working for spending money:

"Another argument from business owners against increasing the minimum wage: It doesn't help the presumed beneficiaries — working-poor families — because many minimum-wage workers are young people learning their first jobs or working part time while going to school.

"Case in point: Bridgeport, Connecticut's largest city and one of its poorest, decided to raise the minimum wage for all city employees to $10.10 on July 1.

"But that will mainly benefit people who work at the city's golf course, like Meaghan Derry and Yogabeth Arias. Derry's husband supports the family with a higher-paying job, and Arias is a high school student who will go to college in the fall.

"The extra money Arias has earned this year from the 45-cent raise has mostly gone to pay for her prom."

In fact, the majority of workers earning near the minimum wage are over age 25 and the vast majority are over the age of 20. Almost 10 percent have a college degree and another 33.3 percent have some college.

Comments (9)Add Comment
written by djb, May 27, 2014 3:16

poor people should not get paid more because they will just use the extra money to pay for the prom

and we cant have them going to the prom

nobody wants poor people at the prom!!

Fear of Full Employment: Causes Employers to Pay Skilled and Unskilled the Same Wage
written by Last Mover, May 27, 2014 4:51
Employers say they're worried that minimum-wage hikes will inflate their whole pay scale; they fear they'll have to raise all wages so that skilled workers proportionally get more than unskilled workers.

Imagine that. Paying skilled workers more than unskilled workers because the wage floor of unskilled workers goes up.

Why can't employers just continue to lie they can't find skilled workers at the higher wage on grounds of structural unemployment?

Then they could pay all workers the same wage since skilled workers dare not leave in a slack economy. Employers could point to them as proof they don't have skills to justify a higher wage.

Of course in a full employment economy the labor market would be tighter and employers wouldn't have a choice would they - either pay the going rate and skill differential for work performed or lose sales.

But that's not what the article is about is it. It's about single people raising children on a minimum wage going to $10.10/hr after a $.45 raise, like something on the cover of a tabloid newspaper in the checkout line.

That's what employers really fear isn't it - full employment. If the bottom rung gets $.45 more then everyone will want more, but they don't really have to pay more in a slack economy.

But in a full employment economy they would pay more for unskilled and skilled - way more. And the first one that lied about structural unemployment would be asked why everyone else is hiring them.
written by Mark Brucker, May 27, 2014 6:15
The piece included comments from economists who have criticized the minimum wage, saying both that it would cost jobs and that it is an ineffective way to reduce poverty. The piece did not present the views of any of the large group of economists who have studied the minimum wage and found that it had little or NO impact on employment.
written by JDM, May 27, 2014 6:53
nobody wants poor people at the prom!!

Can't they have their own prom, maybe under a bridge with a theme of "clean the street while you're at it", and decor consisting of fires in barrels?

I'm not liking a lot of what I'm seeing around my country, and newspapers becoming Bizzaro world Finley Peter Dunnes, comforting the comfortable and afflicting the afflicted.
The More You Read, The More You Say What?
written by James, May 28, 2014 1:28
LA Times implies that giving more $ to the minimum-wage earners so they could spend more in the economy NOT the same giving more $ to the 0.01% so they could put an car elevator in the $100 million beach-front estate in La Jolla, CA.

It's better to give more tax break, more $ to the 0.01% so they could spend more at Tiffany than give $ to minimum wage earners to feed their families.

The poor or barely-survived don't need more $ bc they could always go to the food-banks.

written by purple, May 28, 2014 7:32
So what if the workers are only in high school ? That money is vital for families as well. It's not spare change for a Porsche.
Progressive economists should -- shout! -- that a so-called moderate minimum wage increase will have little effect on poverty
written by Denis Drew, May 28, 2014 10:13

Progressive economists should readily admit -- shout, scream -- that a “moderate” federal wage increase, typically 10% cited in conservative studies, should indeed have little or no effect on poverty rates. Why would an extra 1/4 of one percent of GDP added to low wage pay checks be expected to clear a broad swath through poverty? That is what a $1 an hour increase in the federal minimum wage equates to -- about $40 billion out of a $16 trillion economy. (E.I.T.C. shifts $55 billion.)

A $15 an hour minimum wage OTH would send about 3.5% of GDP the way of 45% of American workers -- about $560 billion (much of it to bottom 20 percentile incomes who today take only 2% of overall income).
* * * * * *
Could raising the wages of 45% of the workforce actually raise demand for the goods and services they produce? Sounds sensible at some level; raising wages so much ought to add demand somewhere – but, is it all smoke and mirrors? Before the 45% -- who would get a wage hike to $15 an hour -- can raise demand anywhere, they would need to get the extra cash from somewhere else – meaning the 55%. (Bottom 45 percentile incomes – not wages – currently take 10% of overall income – so, at no time are we talking giant chunks of the economy here.)

The 45% can get higher pay even as "numerical" (to coin a phrase?) demand for their output declines due to higher prices -- as long as labor gets an bigger enough slice of the new price tags. This can be compared to a leveraged buyout or buying stocks on margin.

Products produced by low-wage labor tend to be staples whose demand tends to be inelastic. Demand for food is inelastic – maybe even fast food. If the price of your Saturday family jaunt to McDonald's rises from $24 to $30, are you really going to eat at home (the kiddies haven't forgotten the fundamental theorem of economics: money grows on trees :-])? And fast food should be the most worrisome example: lowest wages to start with; even so, highest labor costs, 25%.

Wal-Mart is the lowest price raising example (surprise) with 7% labor costs. Jump Wal-Mart pay 50% and its prices go up all of 3.5%.

If low wage labor costs average 15% across the board and go up 50%, overall prices increase only 7.5% -- and that is for low wage made products only; nobody's car note, mortgage payment or health premium is affected. If demand drops just enough for price increases to maintain the same gross receipts (conservative, even without inelasticity), low wage income should improve appreciably.

Allow me to cite: from a 1/ll/14, NYT article "The Vicious Circle of Income Inequality" by Professor Robert H. Frank of Cornell:
“… higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. … as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.”

The same species of wheels-within-wheels multiplier ought to work the at both ends of the income spectrum -- and likely in the middle. A minimum wage raise to $15 an hour is not going to send most low-wage earners in pursuit of upper end autos, extra bedrooms or gold seal medical plans. Wal-Mart and Mickey D's should do just fine, OTH – which in turn should keep Wal-Mart and Mickey D's doing even better.
written by Nick Batzdorf, May 28, 2014 2:45
$3.60 a day. Not enough to buy a freaking cup of coffee.
Subsidizing Poverty
written by subsidizing poverty, May 29, 2014 4:39
I find the support for increasing ETIC annoying. This is effectively the Federal Government subsidizing low wages. While it is a very important anti-poverty tool, it should not be used as a justification for low wages. Low wages is the incipient problem.

Clearly large employers like Walmart and McDonalds are leaning on ETIC to keep low wages viable. Personally I would like my burgers to represent the full cost and not have it also take a margin of its profits from my tax bill.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.