Policy Documents

Increasing the Mandated Minimum Wage: Who Pays the Price?

D. Mark Wilson –
May 5, 1998

Less than six months after its last increase to $5.15 per hour, President Bill Clinton is proposing a hike of 19.4 percent that would raise the federally mandated minimum wage over the next two years to $6.15 per hour. During the past eight years, Congress has increased the mandated minimum wage four separate times. Before raising the minimum wage again, Congress must ask itself a fundamental question: Should it be illegal for Americans, young or old, to work at even a part-time job for $5.50 or $6.00 an hour?

An increase in the mandated minimum wage to $6.15 per hour would be unprecedented in size: in effect, it would represent an increase of $1.90 per hour (44.7 percent) from 1996 to 1999. Never before has Congress raised the minimum wage by more than $1.05 per hour over a period of four years. And that $1.05-per-hour hike took place from 1978 to 1981, a period in which inflation was increasing an average of 10.7 percent per year.

Supporters of a federally mandated minimum wage continue to claim that additional increases are needed because the "rich are getting richer, while the poor are getting poorer." Although wage differences have widened over the past 20 years, such bad economic policy as a mandated minimum wage for workers serves only to exacerbate this problem. President Clinton's proposal to raise the minimum wage, moreover, works against the efforts of Congress to address the problem of moving unskilled Americans from welfare to work. It is an uncompassionate mandate that gives some low-wage workers an increase in their earnings while depriving others of the opportunity to earn anything at all.

A policy decision like increasing the minimum wage is not cost-free; someone has to pay for it. Economic research indicates that those who pay the most are unskilled youth through fewer job opportunities, consumers through higher prices, and taxpayers through higher taxes or fewer services.