30 March 2016

A higher minimum wage is no way to solve the problem of poverty


With California and New York moving to raise the minimum wage to $15 an hour, it’s worth asking which factors generate higher earnings.

Big Brother can mandate a $15 hourly minimum wage, but Big Brother cannot mandate that firms hire workers. As minimum wages have risen, cashiers have vanished from drug stores and food trucks have replaced restaurants. Few would have thought 10 years ago (when the national minimum wage was $5.15) that food trucks would line the streets in the D.C. downtown area and people would line up for their lunch. But it’s happening. Businesses modify their product to suit economic conditions.

What improves pay is productivity, and better education leads to higher productivity. The question is how to raise educational levels of low-income children so that they earn higher wages without the visible hand of Big Brother. Better education in elementary school leads to better achievement in high school. That might lead to a community college or four-year college degree, with earnings that can be many multiples of the minimum wage.

Imagine if all children who lived in low-income neighborhoods, including housing projects, had individual tutors, along with computers and access to the Internet, waiting for them after school. Tutors would help them with their homework and make sure that any computer assignments were completed. (Their parents might not have a computer.) In addition, a mobile medical bus from a local hospital would show up a couple of times a year to give people check-ups and information relating to nutrition and wellness.

These kids would perform better in school; their reading and math abilities would be vastly superior than otherwise. They would be better prepared to qualify for higher-paying jobs because of their skills, not because of Big Brother.

South Carolina’s example

This is happening in South Carolina’s Lowcountry, where a local group called the Neighborhood Outreach Connection (NOC) purchases or rents apartments in six low-income developments and equips them with banks of computers, learning materials and healthy snacks. NOC hires public school teachers and recruits volunteers so that when children come home from school, they can get help with their homework.

NOC’s program centers, located in Bluffton, Hilton Head and Beaufort, help families through the provision of health services, individualized after-school and summer tutoring, pre-kindergarten classes and adult English-language classes. NOC uses incentives to encourage learning and issues report cards to engage parents.

NOC is the brainchild of retired economist Narendra Sharma, who is using his decades of World Bank experience to improve the lives of low-income children in South Carolina’s Lowcountry. The program currently tutors 450 children, as well as some parents who take evening English-language classes. NOC’s annual budget for programs in education, health care and workforce development, as well as social events, is about $375,000.

This month Sharma received the Peggy May Inspiration Award from the Foundation for Educational Excellence. Last year he won a Daily Point of Light Award from the Points of Light Foundation.

The most recent learning centers opened in 2015 in downtown Beaufort, serving 50 children from pre-kindergarten through eighth grade. The Parkview Learning Center has a pre-school program on Friday afternoons, in addition to after-school help Monday through Thursday, with an apartment donated by the Atlantic Housing Foundation. The apartment at Marsh Pointe was given by the Beaufort Public Housing Authority.

Public school partnership

Sharma’s programs are successful partly because he works with the schools. The principal of Beaufort Elementary School said: “The NOC team in Beaufort interacts daily with the staff at Beaufort Elementary School. They focus heavily on tutoring, and helping with homework and improving literacy skills, so our students are better able to master state standards and experience success at school.”

The local schools test the children, ensuring unbiased results. Students who participated in the after-school and summer learning programs in 2013-2014 performed better on math and reading tests than all Beaufort County students and continue to show progress in math and language skills.

The proposed higher minimum wage levels in California and New York will not solve the problem of poverty. Rather, those with low skills will find that job opportunities vanish. If firms have to pay $15 an hour, they will hire workers who are worth $15 an hour. Those with $8.50-an-hour skills will be left unemployed.

The way to higher-paying jobs is by increasing skills, not by artificially raising wages. Education gives the skills to get the first job and then move up to a better one. That’s why the likes of the Neighborhood Outreach Connection, not a higher minimum wage, ought to be replicated around the country.

This article was originally published at MarketWatch, and can be found here.

Diana Furchtgott-Roth is Senior Fellow and Director, Economics21.