On April 29, the House Small Business Subcommittee on Workforce, Empowerment, and Government Programs held a hearing entitled, “Would an Increase in the Federal Minimum Wage Help or Hinder Small Business?”
Chair Todd Akin (R-MO) said, “Although well-motivated, the preponderance of evidence suggests that rather than helping them, raising the minimum wage actually has an adverse affect on the nation’s low-income and low-skilled workforce.” Citing a study that found 645,000 jobs were eliminated after the last minimum wage increase in 1996, Rep. Akin added, “As legislators, it is our responsibility to pursue policies that will continue to expand this economy and encourage job creation and do away with policies that kill jobs.” All but one of the witnesses testified against an increase in the federal minimum wage.
Representing the Heritage Foundation, Paul Kersey said that “increasing the minimum wage will do little to improve conditions for the working poor. This is because relatively few of the recipients of such an increase are living in poverty.” He referenced a Heritage Foundation analysis of 2003 U.S. Census data showing that only 15 percent of American workers receiving less that $6.65 an hour are living in poverty. “Nearly three-quarters of these workers, 72 percent to be precise, have a family income that is at least 50 percent higher than the poverty line, and over half belong to families earning double the poverty level,” he said, adding, “In other words, the typical beneficiary of a minimum wage increase will not be a poor father or mother scrambling to keep a family fed, clothed, and housed.”
Rather than increase the minimum wage for those low-income families who might benefit from such an increase, Mr. Kersery suggested that “increasing working hours would have a far greater benefit for these families, both immediately and in the long term.”
Craig Garthwaite of the Employment Policies Institute concurred. “The proposed increase will not only fail to reduce poverty, but also it will decrease employment opportunities for low-skill Americans—denying many of them the opportunity to stay in the workforce and learn the skills necessary to improve their lives.” He cited a number of studies demonstrating job loss as a result of a minimum wage increase, including a 2003 Federal Reserve analysis that estimated a two to three percent decrease in employment as a result of a 10 percent increase in the minimum wage. “The most damaging effect is the fact that job loss is concentrated on the least skilled employees—the very individuals supporters of a minimum wage increase are attempting to help,” he said.
Speaking on behalf of the National Small Business Association, Todd McCracken said that the minimum wage is an important issue to many small businesses. “While it is not an issue resolutely held in the same esteem as health care is these days, it is a debate that is garnering sideways glances from those in the small business community,” he said. Using a small-town hardware store as an example, he told the subcommittee, “If the federal government tells us that we have to increase the hourly minimum wage from $5.15 to $7.00, that’s going to directly affect probably 20 percent of my workforce. If we assume that those 10 workers each work 20 hours per week, that’s an additional $370.00 per week…If we’re also to assume that I have the rest of my workers on a graduated scale, it’s reasonable that not all would be above $7.00 per hour. So now I’ll have to increase those workers to at least the federal minimum…So by making a ‘simple’ change to the minimum wage, the federal government has forced me to increase all my employees’ pay by a minimum of $1.85. This would equate to upwards of $2,000 weekly in mandated payroll increases.”
Dr. Jared Bernstein of the Economic Policy Institute was the only witness to testify in support of a minimum wage increase. “The last minimum wage increase in 1996-1997 increased the earnings of 9.9 million workers, or 8.9 percent of the workforce. By this metric, the current proposals are significantly more modest. The larger increase, to $7, proposed by Senate Democrats, would raise the wages of 7.4 million workers, or 5.9 percent of the workforce, whereas the Senate Republican offer—$6.25—would reach 4.1 million workers, or 3.3 percent of the workforce. In all cases, the demographic groups who disproportionately benefit from these increases are adults, women, and minorities,” he told the subcommittee.
Responding to testimony that an increase would hurt small businesses, Dr. Bernstein cited a Fiscal Policy Institute study that found “between 1998 and 2001, the number of small business establishments grew twice as quickly in states with higher minimum wages (3.1 percent vs. 1.6 percent); employment grew 1.5% more quickly in high minimum wage states; and annual and average payroll growth was also faster in higher minimum wage states.”
Dr. Bernstein also pointed to research showing that over half of the gains from a simulated $1.00 increase in 2000 went to “families in the bottom 30% of the income scale, compared to an income share of 14 percent.”
