Chapter 2 Government Control of Prices Do the Poor Benefit?
In 1987, working full-time in America can make you poor-poorer than col lecting welfare. Someone working full-time must earn $4.30 per hour to keep a family of three out of poverty. Unfortunately, the federal minimum wage requires that employers pay only $3.35 per hour. This means the income for 5 percent of all U.S. workers who earn the minimum wage or less is at the poverty level. Approximately another 5 percent, who earn slightly more than the minimum wage, are not much better off One rationale for the minimum-wage law, first established in 1938, was that a minimum wage prevented wages from falling so low that workers could not provide for their own subsistence; the minimum wage was to supply a ballast for our social principles, as well as for the earnings of orkers. Since 1938, working full-time at the minimum wage yielded a subsistence income (sometimes more) for a family of three. In 1987, how- ever, the minimum wage is just 78 percent of the poverty wage. This is the lowest percentage of the poverty wage that has existed in the United States since 1950-12 years before the War on Poverty was declared! The minimum wage does not just establish absolute standards. It also establishes the position of workers relative to one another, in that it in fluences the size of the gap between the lowest paid worker in society and the typical manufacturing worker. In 1950, minimum-wage workers earned approximately half of what manufacturing workers earned. In 1987, the minimum wage is 34 percent of the average manufacturing Thus, the wage ratio between the lowest paid worker and the factory worker went from 1:2 in 1950 to only 1:3 in 1987.