Minimum Wage Policy Questions Persist

In response to a congressional request, GAO examined the effects of the minimum wage on employment and the distribution of income. Legislation has established the current minimum wage at $3.35 per hour which applies to over 80 percent of the nonsupervisory employees in private, nonagricultural establishments.

GAO found that the employment level is lower than it would be if there were no minimum wage rate; however, GAO could not estimate the number of jobs that have been lost due to the establishment of the minimum wage. In examining the potential advantages and disadvantages of several alternatives to current minimum wage policy, GAO reviewed the Minimum Wage Study Commission report which recommended against establishing a national or local youth subminimum wage, chiefly because employers might hire teenagers at the lower rate and displace adults who are more likely to be the primary earners in households. The report also recommended that the statutory minimum wage be indexed or adjusted for inflation because, if it is not, the earning power of an hour's labor at the minimum wage will be diminished. The commission reviewed subsidizing the employment of low-skilled labor by tax incentives but made no recommendations. GAO found that economic analysis of minimum wage issues has limitations because of inadequate data and differing perspectives and concluded that political questions of distributional fairness and social policy are key elements of minimum wage policy assessment.