The debate over the minimum wage has raged since the federal government first set wage standards in 1938. It continues today in California, where freshman Assemblyman Luis Alejo, D-Watsonville, is touting a popular bill – Assembly Bill 10 – to raise and index the state’s minimum wage. The two major points of contention in the policy debate on the minimum wage are whether job loss accompanies a minimum wage increase, and whether a large number of families depend on the income from minimum-wage jobs.
The first argument has been largely resolved: The best empirical evidence confirms standard economic theory that, if the government sets a wage floor above prevailing wages, some jobs will be lost.
But what of the second argument? Legislators from both sides of the aisle have been persuaded to vote for past increases in the minimum wage due to a strong conviction that many families are struggling to make it on the minimum wage alone. My new research debunks this conventional wisdom: A majority of adult minimum-wage earners in families are living well above poverty and are supported by a spouse who earns a considerably higher wage.
If family dependence on the minimum wage is the most widely used justification for wage hikes, we should know how prevalent such dependence is. For instance, a parent working at the minimum wage may hold another, higher-paying job. In two-parent families, the spouse of the minimum-wage employee may be the primary breadwinner. These and other possibilities imply that households with adult minimum-wage workers may not be as income dependent on those jobs as some advocates would like you to think.
The most compelling evidence on this topic is found by examining the finances of affected families in which one adult, age 33 to 50, worked a job earning at or below the minimum wage. I used data from the National Longitudinal Survey of Youth between the years 1998 and 2006, when the federal minimum wage was constant.
In 90 percent of the married-with-children households I studied, there was also a working spouse; 63 percent of these spouses earned more than $30,000 a year, with about half earning more than $40,000 a year.
None of these households are in poverty, nor is their economic well-being dependent on earnings from their minimum-wage job. In only one out of seven of these households are the earnings of both the minimum-wage worker and the spouse less than $10,000 apiece.
We can further describe the financial situation of these married-with-children minimum-wage workers by looking at the percentage of total family income coming from that job. With so many high-earning spouses, the percentage is low; in more than 75 percent of these families, the minimum-wage job accounts for less than 20 percent of family income.
In short, the evidence is overwhelming that family dependence on the minimum wage is the exception rather than the rule. And since almost all of those employees held higher-paying jobs at some point during the period studied, we can once and for all dispel the notion that a sizable number of adults are “stuck” at the minimum and waiting for a raise.
But what about the small number of less-skilled or experienced adults who do work at the minimum for an extended period of time and lack other sources of income? For them, raising the minimum would very likely hurt more than it would help – raising the cost to employ them increases their risk of losing employment altogether. Better-targeted assistance like the Earned Income Tax Credit would be less costly and more effective.
If the principal motivation for increasing the minimum wage is to aid struggling families in California, it is clear that such a strategy is highly inefficient. A majority of families with an adult earning the minimum wage are not struggling, and – given the small percentage of household income contributed by the minimum wage – their economic well-being is little changed as a result of a hike.
