Does the minimum wage hurt the poor?

Customers walk out of a Taco Bell and Pizza Hut restaurant during lunchtime in Los Angeles, Calif. The restaurant is owned by Yum! Brands, one of the largest employers of minimum-wage workers.

The burrito Krissy ordered for Bob Pollin.

UPDATE: In his 2013 State of the Union address, President Obama proposed raising the minimum wage to $9 an hour. The very next day, House Speaker John Boehner said Republicans in the House wouldn't support that proposal because it would hurt small business and kill jobs. 

Recently, Congressional Democrats introduced a bill that would raise the federal minimum wage from $7.25 to $9.80 over the next two years. It's not expected to make much headway this year, but it’s got people talking about the pros and cons of the idea.

To get to the heart of this debate, I took two economists to the heart of minimum-wage country to have them hash it out.

To get to there I didn't have to go far. Almost every city in America has a fast-food row, and I headed to the one near my house in L.A. Specifically, to the kind of funny-sounding fast-food-hybrid that's the subject of this definitely funny song:

YUM! Brands Incorporated is the parent company of Pizza Hut and Taco Bell, and is one of the largest employers of minimum-wage workers in the country.

It’s U.S. workforce is more than 800,000 strong -- and includes Liz, according to her nametag. She's the middle-aged cashier in a black and purple uniform who took my order at my neighborhood Combination Pizza Hut and Taco Bell. I asked Liz how much she makes, but she said she didn't want to say and motioned me over to her supervisor, who told me the starting hourly rate for a job like Liz's is minimum wage.

What she didn't tell me is this fact of the modern American service economy: at current mimum-wage levels, if Liz was supporting a family of three, she’d be below the poverty line.

Taco Bell says they pay competitive salaries and provide training so people like Liz can move up. But what would happen to Liz, to her customers, to this Pizza Hut/Taco Bell’s bottom line if the minimum wage was raised?

I took that question to two economists who see minimum wage in very different lights, for a minimum wage "throw down."

In one corner: Bob Pollin at the University of Massachussets at Amherst. In the other: David Neumark at the University of California, Irvine. And just for fun, I did the interview at my local Combination Pizza Hut and Taco Bell, and Pollin and Neumark were on opposite sides of the country, I asked them to imagine they were there with me.

To start off I asked them each for their basic perspectives on minimum wage. I also asked them to order something off the Pizza Hut/Taco Bell menu.

Pollin ordered a burrito. Then he launched the opening volley. "We should have a minimum wage that enables everybody including all the people at the Pizza Hut and Taco Bell to lead a minimually decent life," he said. "And in order to do that you can’t just rely on the market alone."

Neumark said he agreed with Pollin on one count.  "I don't like the idea that people who work live below poverty conditions, or even somewhat above poverty conditions," he replied. But, he added, "I think the question is: does a minimum wage actually help?"

Then Neumark ordered a large pepperoni pizza and an extra large Coke. "Since this is an invisible meal," he said. "And I'm not eating it."

But that's when things got interesting.  Neumark says one of his main concerns about raising minimum wage was actually illustrated by what my cashier, Liz, told me when I order that extra large Coke: "I'm going to give you the cup," she said pointing me to the self-serve drink dispenser.

Turns out this moment, Nuemark says, is quite possibly an effect of past increases in the minimum wage.

"When I was a kid and you ordered a soda, a person had to stand wiuth their finger on the button til the glass filled up," he said. "And now in many of the fast food restaurants of course they've completely eliminated any labor involved with pouring the soda."

Soda by soda, that can add up to eliminating a job.

"It may not sound like much," Nuemark continued, "but minimum wages can accelerate these kind of changes."

He argues that if a company has to pay people more, they’ll find ways to pay fewer people. So what would happen if we raised the minimum wage today and came back to this Pizza Hut/Taco Bell in six months?

"My prediction based on lots and lots of research is that there’d be somewhat less employment at that restaurant," Neumark said.

Of course, he cautioned: "Economists have been wrong once or twice about their theories."

"But not you!" interrupted Pollin, the  economist from University of Massachusetts at Amherst.  He was ready for his turn.  First, Pollin pointed out the academic research is split on whether raising the minimum wage actually raises unemployment in any significant way. For one thing, he says, there are alternative ways a fast-food joint might offset the extra costs of higher wages.

"The prices of the products could go up," Pollin noted. "And you will also see some reduction in the profits of the business owners."

And, he says, you can’t ignore all the good things a minimum wage bump can do for the workers themselves. Pollin has surveyed nearly a hundred people who’ve been affected by past minimum wage increases. He asked what changed in their lives.

"You don’t have to work three jobs, you only have to work two jobs," Pollin said. "Or they can get a car, a used car, or at least get a car repaired. They can buy groceries for elderly parents. Those are meaningful things."

Pollin also argues that because businesses are investing more money in their workers, turn-over tends to drop, too.

"You get people working at a higher level of productivity. That improves relations between managers and workers," Pollin said. "You essentially change the nature of the work relationship when you pay people decently."

Pollin and Nuemark sparred a bit more over raising the minimum wage. Pollin pointed out that if you adjust for inflation, minimum wage is actually lower now than it was forty years ago. Nuemark, meanwhile, questioned who really benefits from a higher minimum wage. Poor families? Or the many middle-class teenagers who work low-wage part-time jobs?

One of the few things they could both agree on about minimum wage?

"It’s not a cure-all to poverty," Pollin said. "In fact, the biggest source of low-income poverty is that people don’t have jobs at all."

Finally, some consensus: "I absolutely agree with that," Neumark replied.

Back at the cash register, I asked Liz -- the woman behind the counter -- what she thought about all this. But she couldn’t talk. She was on the clock.

As for Pollin and Neumark -- they were of course in different parts of the country, so they couldn’t actually eat the pizza and burrito I'd ordered for them. But I could.

About the author

Krissy Clark is the senior reporter for Marketplace’s Wealth & Poverty Desk.

The burrito Krissy ordered for Bob Pollin.

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Insteresting story and yes, of course the minimum wage law hurts the poor. Businesses are rational, and when the cost of hiring someone in wages and other mandates from the government, the more they will consider the alternatives that include among other things: customer self service, outsourcing to area with lower labor costs, investment in labor saving capital equipment, closing businesses no longer profitable.

Economists know that labor and capital are interchangable. So when the cost of capital is at record lows (AKA interest rates) and the cost of employing even the lowest skilled Americans is going up due to min wage laws and mandates and liabilities on employers, then business will opt more for the labor saving capital alternative.

Also wanted to say that this notion of a "living wage" is nonesense. There is no reasonable expectation that a person should be able to support a family doing just any job they find themselves doing. These entry level low skill/ low pay jobs are meant for kids living at home while they're in school getting skills or as a temporarly stepping stone to learn basic skills before moving onto a more productive job.

I worked for minimum wage while I was in high school. It was a crappy job but the most important thing I learned was that I needed to go to college and learn something practical so I didn't have to live like the sad sacks that were trying to make a career out of that place.

A rise in the minimum wage is the reason that fast food restaurants have do-it-yourself beverage dispensers? What a load of crap! What drives such efficiencies is advancing technology, not a change in the pittance paid to those at the bottom of the wage scale. This isn't economics, it's polemics. As Paul Krugman is constantly bewailing, the profession of academic economists has become corrupted by people such as Mr. Neumark who peddle tendentiousness under the false pretense of economic analysis.

"kind of funny-sounding fast-food-hybrid that's the subject of this definitely funny song"

Not funny, not a song. Because you insisted on incorporating rap into your story, I just turned off the sound.

If you want overgrown children to listen to your stories, by all means, keep cramming rap into them. If you want NPR listeners to listen to your stories, try sticking to the damned story, without the crap. I listen to NPR for news, not noise.

I don't willingly listen to rap in my home. What makes you think I want to be forced to listen to it by a journalist, any more than by a rude neighbor or passing motorist?

The contributor's comment that raising the minimum wage resulted in someone handing a drink cup to patron to 'fill on their own' is not the case nor leading to one making their own tacos down the road. As my wife has managed a Taco Bell for over seven years, I can attest she has hired MORE persons as business has increased substantially over the years not less and not because she saved on the dispensing of drinks.

I agree. The contributor's comment was oversimplifying things and should have been contested. Manual drink filling shops do not require a larger staff. If anything, they have longer lines and a smaller, less loyal customer base.

A national minimum wage. Would that have the same effect on an employee in New York as it would in Brownsville Texas? "n New York, the minimum wage is $7.25, far below the $11.86 an hour it takes to actually live in the city, according to the Living Wage Project" According to Kiplinger "Rents in Brownsville average $659, that's 4.2 times less than New York, the most expensive city in our annual rankings, where rents average $2,778" I believe minimum wage needs to keep pace with inflation, but is definitely not a cure all. One question, When Krissy Clark paid for her meal at Taco Bell et al, Did she leave a tip??

Job creation does not have a one-to-one relationship with the minimum wage. If we are evaluating whether a higher minimum wage would hurt or help the poor, then the most important question is whether the change would provide a fair wage for more working Americans, who are living BELOW the poverty line. It is a different issue entirely whether or not fewer jobs will be available. There are so many other factors that go into job creation-- it is an incredibly misleading and specious excuse to whine about the effect on unemployment figures... Those who ARE employed still should be paid fairly! Maybe we would even have better job creation due to less dependence on welfare, higher domestic consumption, bigger corporate profits.

I have worked for minimum wage at a fast-food restaurant, and saw exactly what happened each time the minimum wage was raised. It is interesting that neither of the economist considered this scenario. After closing the night before the minimum wage went up, we climbed up onto the counter and raised all the prices on the board. As I drove home, I saw gas station employees raising their prices. If I stopped at a store, I saw store employees raising their prices. It was going to be 2 weeks before I got my paycheck with my new raise, but during that time, everything I bought cost more. After that, I came out exactly even. No one was laid off, but the entire U.S. experienced inflation. The raise did not help anyone.

I understand your experience, but on the reverse if there were NO minimum wage or they went down or even NO wage, would the products be less? NOT.

Sorry Beth, but the minimum wage has not caught up with the rate of inflation over the past 40 years in the U.S.

From the article:
"...the federal minimum wage dropped 20 percent from 1967 to 2010, even as the nominal figure climbed to $7.25 an hour from $1.40, a 418 percent gain.
The decline would have been worse if not for increases that took place from 2008 through 2010 in how much employers were legally obligated to pay. Combined with more stable consumer prices, those adjustments helped trim the reduction in earnings from 41 percent at the end of 2007, following a decade of no change in minimum pay."


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