One little-noticed effect of an increased minimum wage is that it always increases the percentage of workers who end up earning less than the minimum wage. An employer with an annual income below $500,000 is free to ignore the federal minimum wage. The federal minimum wage does not apply to workers on small farms or at seasonal amusement or recreational facilities.  It does not apply to newspaper deliverers, companions for the elderly, outside salesmen, U.S. seamen on foreign-flag ships, or part time babysitters.  There is sure to be some outright evasion of minimum wage laws..

The Statistical Abstract of the United States shows that among 73 million workers still paid by the hour in 2003 only… 0.7% earned the minimum wage. Three times as many- 1.6 million or 2.2 percent- earned less than the minimum wage.  What happens when the minimum wage is increased is that some are priced out of a job, such as replacing supermarket clerks with self-check-out machines.  But many are simply shoved into jobs that pay even less than the minimum, legally and otherwise.

The federal minimum wage was increased to $4.75 in October 1996 and to $5.15 a year later.  What happened? The Statistical Abstract from that period shows that the percentage of workers earning less than the minimum wage jumped from 2.5 percent (1.7 million) in 1995 to 4.2 percent (3 million) by 1997.  The percentage of teens working for less than the minimum rose from 7.2 percent to 19.8 percent.  The increased minimum wage is the only plausible explanation, since unemployment was low and falling in1996-1997.  The higher minimum wage increased competition for subminimum wage jobs, pushing the lowest wages even lower. Good intentions do not always produce good results.

From Income and Wealth by Alan Reynolds

HKO comments:

It has become a common refrain in these pages to see how government policies work contrary to their intentions.   Minimum wage laws may not be seen to impact employment  immediately at the time they are enacted, but their influence on unemployment will be felt dearly when the next recession hits and the lowest paid and least experienced are the first to feel the pain. Unemployment among black teenagers is over 40%.   It just defies basic common sense to require employers to pay more for anything and not expect them seek alternatives. These minimum wage laws are definitely influencing employment numbers now, and the health insurance bill is in effect an increase in employment costs that is making it even worse.

It is also noteworthy how little analysis like this is ever carried in the broader media.

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