Popular opinion says that an increase in minimum wage gives more money to low-income families and decreases poverty. UC Irvine social science professor David Neumark disagrees, however, saying that such increases reduce the demand for low-skilled workers, thus decreasing the jobs available to them and ultimately hurting those whom the government seeks to help.
‘If you think about firms that have some choice about how to produce things [by using low-skilled or high-skilled labor], when you make whatever you’re talking about more expensive, they are going to use less of it. If you raise the price of low-skilled labor, they are going to substitute away from that low-skilled input toward other inputs,’ Neumark said at the University Club last Thursday, where he spoke as part of a series of presentations hosted by the Social Science Dinner Club.
Neumark, who earned his Ph.D. from Harvard, is a labor economist who has conducted research on discrimination and health economics. He said that the same rules of economics that apply to products and consumers also apply to employees and business owners.
‘Economists predict that when something becomes more expensive, people use less of it,’ Neumark said, citing the examples of gasoline and cigarettes.
Neumark said that many fast-food restaurants have already started to cut down on the use of low-skilled workers by doing things like having customers get their own drinks.
Minimum wage seems to most benefit low-wage workers who are teenagers from high-income families, according to Neumark. Employers see them as having more potential than adult heads of low-income households. Thus, when the minimum wage is raised and employers cut back on labor, adults are the ones who are most likely to lose their jobs.
‘It merely comes down to [the question of] who’s helped and who’s hurt, and if those who we’re trying to help are truly helped by the policy or not,’ Neumark said. ‘We have different kinds of minimum wage workers. We have very poor workers who earn low wages [like low-skilled adults who dropped out of high school], and we have teens who are low-wage workers, [but whose families are part of] the middle or upper class.’
A better solution to the problem of poverty is the Earned Income Tax Credit, according to Neumark, which reduces or waives taxes for low-income families and increases their income when it falls below a certain level.
‘The EITC has two virtues: It’s based on family income
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