In his State of the Union Address, President Barack Obama proposed raising the national minimum wage from $7.25 to $9 per hour. At the state level, ten states had increases in their state’s minimum wage go into effect in early 2013.
According to data collected by the National Conference of State Legislatures, currently 18 states have minimum wages above the federal minimum wage. Five states don’t have a minimum wage at all.
While mandating a base level of hourly pay is intended to help bring people out of poverty, minimum wages bring with them unintended consequences. In our lead story below, Heartland’s senior policy analyst argues increasing minimum wage laws is not an effective method for addressing poverty because it raises barriers to entry for less-skilled and -educated workers.
Nobel laureate economist Milton Friedman said, ‘The real tragedy of minimum wage laws is that they are supported by well-meaning groups who want to reduce poverty. But the people who are hurt most by higher minimums are the most poverty stricken.’
No matter how well-intended a public policy may be, we must remind ourselves it is not the role of government to mandate a specific price for labor, energy, or any other goods and services. As Heartland’s “10 Principles for Improved Business Climates” booklet points out, “Most wages are higher than the minimum wage, not because a government law requires them to be, but because businesses compete vigorously for workers.”
Ultimately, prices and wages are best set by supply and demand.
In this week’s edition of The Leaflet: research and commentary addressing Illinois’ minimum wage; Arkansas Gov. Beebe says he will expand Medicaid by not expanding Medicaid; cell phones are taxed higher than “sin”; lifting the cap on member business lending; and Maryland’s Taxpayer Savings’ Act.
Director of Government Relations
The Heartland Institute
Research & Commentary: Illinois Minimum Wage Reform
Budget & Tax
In his 2013 State of the State speech, Illinois Gov. Pat Quinn proposed increasing the state’s minimum wage from $8.25 to $10 an hour over the next four years. A similar minimum wage proposal failed to pass in the state Senate in 2012. Minimum wage laws are meant to protect workers’ health and well-being by mandating a base level of pay for certain covered employees.
Illinois’ last minimum wage increase came in 2010, when it was raised to $8.25 as part of a four-step increase implemented in 2006 under former governor Rod Blagojevich. Illinois’ current rate is considerably higher than the federal rate of $7.25. According to the U.S. Department of Labor, only Washington and Oregon have higher minimum wage rates than Illinois.
Quinn argued in his speech that no one should work a 40-hour week and still live in poverty. His mandate would give Illinois the nation’s highest minimum wage rate. Quinn’s proposal has drawn criticism from several quarters, including the Illinois Chamber of Commerce, which argues a minimum wage increase will make things worse for employers and job-seekers.
Opponents of minimum wage laws say these artificial wage hikes increase unemployment and poverty. When laws require businesses to pay higher wages, those businesses have to make adjustments elsewhere to offset the increased costs. That often involves reductions in hiring, employee hours, and benefits; higher prices for consumers; and less investment. A minimum wage hike can cause businesses to move out of the state. All of Illinois’ bordering states have minimum wage rates lower than Illinois’, and the proposed rate hike would only heighten that disparity.
Increasing the minimum wage is not an effective method for addressing poverty because it raises barriers to entry for less-skilled and -educated workers.
Click the link for more articles examining minimum wage laws and their effects on the economy.
WHAT WE’RE WORKING ON
Arkansas Gov. Mike Beebe Expands Medicaid by Not Expanding Medicaid
Over the past few weeks governors have been offering their perspectives regarding Medicaid expansion. Last week saw one perspective from Wisconsin Gov. Scott Walker announcing a policy that will shift many in Wisconsin onto the federal health insurance exchanges, while Florida Gov. Rick Scott embraced the Medicaid expansion after promising previously that he would not.
Just yesterday it was announced Arkansas may expand Medicaid without expanding Medicaid. Heartland Institute Research Fellow Benjamin Domenech, managing editor of Health Care News, explains, “Shifting this population to the exchanges will cost more than Medicaid in the long run, but offer far better coverage and options than the state’s already overburdened Medicaid program would.”
Cell Phones Often Taxed More Heavily than Alcohol and Cigarettes
In this article from the Heartlander digital magazine, Research Fellow Steve Stanek examines a new analysis by the Tax Foundation that found wireless consumers in the United States pay more than 17 percent in taxes and fees on average on their cell phone bills, including more than 11 percent in state and local charges.
The report, which utilizes data from a study by Scott Mackey of KSE Partners, found the combined federal-state-local average rate exceeded 20 percent in several states including Washington, New York, Florida, Illinois, Rhode Island, Missouri and Nebraska, where the rate peaked at 24.5 percent.
Stanek points out taxes on wireless exceed those on alcohol and tobacco in many states. “As many different government entities take aim at the cell phone service tax base in an uncoordinated fashion with little concern for how other taxing authorities treat the services, cell phones are taxed at a much higher level than other consumer items (even alcohol and cigarettes).”
Research & Commentary: Lifting the Cap on Member Business Lending
Finance, Insurance, and Real Estate
Representatives Ed Royce (R-CA) and Carolyn McCarthy (D-NY) have introduced the Credit Union Small Business Jobs Creation Act (HR 688), which would lift the member business lending cap on credit unions from 12.25 percent to 27.5 percent of total assets.
In this Research & Commentary, Senior Policy Analyst Matthew Glans examines credit union member business lending, the proposed changes to the lending cap, and the proposal’s possible effect on the nation’s credit markets. According to the Small Business Administration, credit unions often lend to types of businesses that can’t get bank loans. The Credit Union National Association estimates the proposed loosening of restrictions on member business lending could spur creation of more than 140,000 new jobs and open up $13 billion to small businesses in the first year.
Research & Commentary: State Motor Fuel Taxes
State motor fuel taxes, and in particular gasoline taxes, are declining in efficiency and fairness, yet many states across the country are considering increasing motor fuel taxes to fund infrastructure projects. Senior Policy Analyst Matthew Glans and Policy Analyst Taylor Smith co-author this Research & Commentary to explain why increasing gasoline taxes won’t raise much revenue but will have economically regressive consequences.
They write, “the rise of fuel-efficient cars has decreased motor fuel tax coffers and disproportionately shifted the burden to low-income drivers, who typically own older, less fuel-efficient vehicles. In addition, governments have increasingly diverted funds from this tax away from their intended purpose in order to balance budgets or fund unrelated projects.”
Tip Sheet: Maryland’s Taxpayers’ Savings Act
Maryland has struggled to balance its books in recent years and is barely getting back on its feet after the recession. Currently, one-third of the state’s budget is spent on education and it is ranked the ninth-highest spender on K-12 education. Despite this, Maryland achieves at best only average results in student learning. The Taxpayers’ Savings Grants proposal would be an innovative way to use empirically tested and parent-empowering reforms to spend public money more efficiently while giving families equal access to quality education options that fit their own diversity.
Tip Sheet author Research Fellow Joy Pullmann says, “The TSG program allows parents of children attending public schools to help the state save or put back into the public schools $5,500 per child who participates.”