This week I thought I would write about the minimum wage for a couple reasons; first, because the idea of increasing it from $7.25 per hour to $10.10 per hour has been brought up as a political issue at both the national level and also the state level and second, because an ISU economist has recently said some interesting things about it.
A couple of weeks ago, Dr. Peter Orazem issued a press release in which he discussed the impacts of minimum wage increases. He argued that increasing the minimum wage often has the opposite effect on those that the legislation is trying to help. "An increase is not going to create jobs; it’s not going to make people richer," Dr. Orazem argued. "It will help some people and hurt some people, so in the end it’s a wash in terms of the overall economy."
Orazem echoed what most economists have said for many years, that raising the minimum wage is not an effective tool at combating poverty. He said that expanding the Earned Income Tax Credit (EITC) is a much more targeted and valuable option that lawmakers should consider. Last year, the Iowa Legislature supported this proposal and doubled the value of the EITC as part of the Property Tax Reform package.
In the release, Orazem also cited a 2002 study that he conducted looking at the impact of Iowa’s first minimum wage law. The study reviewed changes in worker pay between 1989 and 1992, and found that there was a reduction in the number of people working after the minimum wage was increased. At that time, Iowa had a higher minimum wage than the federal rate, and also exceeded all neighboring states. "We traced the earnings of people making minimum wage before Iowa raised its rate," says Orazem. "On average, that group actually lost income as the minimum wage increased; they didn’t gain income. The primary reason was cuts in hours."
In addition, the day after Orazem’s release the Congressional Budget Office released a report detailing the effects of a national minimum wage increase. The report concluded that if the federal minimum wage were raised to $10.10 per hour, approximately 500,000 jobs could be eliminated nationwide. This past month, the Employment Policies Institute echoed the CBO report, and found that Iowa would lose somewhere between 5,229 and 15,687 jobs if the minimum wage went to $10.10 per hour.
I am currently looking into the impact that raising the minimum wage would have on single parents in Iowa. The early numbers I have seen indicate that some individuals with kids would pay enough more in taxes and lose enough federal benefits that they would actually have less net income at $10.10 per hour than they currently do.
If you have any questions or concerns, please contact me. Home phone: 515-382-2352. E-mail: Dave.Deyoe@legis.iowa.gov.