Facts about the minimum wage

by on August 12, 2013 at 6:14 am in Economics | Permalink

…the minimum wage is very much a bottom latter rung for the labor market, which you can see in Meer and West’s evidence that workers frequently transition out of the minimum wage. In their data 59% of workers who earn the minimum wage in one year earn more than it in the next year if they remain employed (5.8% are unemployed and 16.8% have left the labor force). The median wage increase they get is $0.90 per hour, which is a 23% raise. The 75th percentile raise is $2.45 per hour.

That is from Adam Ozimek.

RZ0 August 12, 2013 at 6:54 am

“In their data 59% of workers who earn the minimum wage in one year earn more than it in the next year if they remain employed (5.8% are unemployed and 16.8% have left the labor force).”
So if you drop out the 22.6% who crash and burn completely, just more than half end up doing a bit better.
How much better? Well, the median worker gets a raise from the minimum ($7.25 an hour) to $8.15. If he works 2,000 hours, he will make $16,300 a year, which puts him almost $1,000 above the federal poverty level for a family of two, which is $15,510. That’s why America is the land of opportunity.
Of course, half work that year and don’t do so well.
Caveat: Look carefully at the wording. It’s not really clear if the median wage given here includes the 41% of people who worked for minimum wage for a year but received no increase. If it doesn’t, the median increase is a lot closer to zero.

Cliff August 12, 2013 at 10:47 am

By “a lot closer to zero” do you mean 14% instead of 23%?

You are right, this is exactly why America is the land of opportunity, because our labor restrictions are much less severe than in Europe where youth unemployment is extraordinarily high. The vast majority of minimum wage employees are teens or retirees. Without a first job, you can’t climb the ladder to higher paying jobs.

I would also note that the median household income in Europe is about $30,000, so a family of two working minimum wage would have the average European income. I wouldn’t live on $15,000/yr if I didn’t have to, but at the same time it is very possible to do so comfortably (i.e. fed, clothed, sheltered, with health care and plenty of entertainment).

rjs August 12, 2013 at 12:49 pm

More Than a Quarter of Fast-Food Workers Are Raising a Child – John Schmitt and Janelle Jones of the Center for Economic and Policy Research have gone ahead and combed through the most recent census data to create a portrait of the nation’s fast food workforce (the tables below are all theirs). A few interesting stats:

•Almost 40 percent of fast food workers are 25 or older.
•More than 30 percent have at least some college experience.
•More than a quarter are parents.

http://www.theatlantic.com/business/archive/2013/08/more-than-a-quarter-of-fast-food-workers-are-raising-a-child/278424/

Cliff August 12, 2013 at 2:11 pm

Fast food isn’t the same thing as minimum wage. I did overstate my case it appears, but the point remains that minimum wage jobs are rarely for people trying to support a family and then are an alternative to unemployment.

RZ0 August 12, 2013 at 2:39 pm

Cliff, you seem earnest and honest. I think you should use a bit more care in your adverbs. For example, I think the word “rarely” is a bit of an overstatement, and as evidence I’d cite the same studies that rjs and I have already linked to.

If you have evidence that it is rare to support a family on the minimum wage, it would help you to present it.

Brandon August 14, 2013 at 10:05 am

You can check the BLS stats, http://www.bls.gov/oes/current/oes353021.htm, the median age for a fast food worker is 29 these days, and the media wage is $8.78.

It doesn’t break down by how many are supporting family, at least in any way I can find (I’m not familiar with BLS data and how to break it down beyond the premade breakdowns they provide), but do you have any data that supports your claim? In 2002, the median age was 22 and in a decade, it’s gone up to 29. I think it’s fair to assume that many people really are relying on these minimum-wage or near-minimum-wage jobs to support a family.

Floccina August 13, 2013 at 4:47 pm

I worked form age 22 to age 29 at just a couple of $ above the minimum wage and I worked with many single mothers. I remember a conversation one time with one of them, we were talking about the myth that children are expensive and she said “If you got $20 left at the end of the week that you have enough to care for a child.” I think she was right, that is if you have a healthy child it costs very little to raise them.

BTW median PPP income in Japan is about $19,564.

Floccina August 13, 2013 at 4:55 pm

I worked from age 22 to age 29 at just a couple of $ above the minimum wage and I worked with many single mothers. I remember a conversation one time with one of them, we were talking about the myth that children are expensive and she said “If you got $20 left at the end of the week that you have enough to care for a child.” I think she was right, that is if you have a healthy child it costs very little to raise them.

BTW median PPP income in Japan is about $19,564.

RZ0 August 12, 2013 at 1:07 pm

What I mean is:

The wording is vague. If the median is derived by only counting people who received raises, then the median raise for all workers must be lower. But if 41% get no raise and 59% get a raise, then the median raise for all workers would be the 15th percentile of people who did get a raise.

You can’t tell how much that is without knowing the actual distribution of raises. I suggest it’s much closer to 0% than it is to 23%.

Minimum wage workers are more likely to be young than the general population, but most minimum wage workers (71%) are out of their teens. About half are above age 24: http://www.bls.gov/cps/minwage2011tbls.htm

I doubt many retirees make the minimum wage, as they are all retired.

Not sure about the validity by comparing with Europe, as the social safety net there is a bit cushier than in America. Health insurance is one significant difference, but not the only one.

As far as living comfortably on the minimum wage, it seems difficult to budget. You can get some spending tips and commentary on same by googling “McDonald’s budget”.

Cliff August 12, 2013 at 2:12 pm

You can be retired from one job and working at another one. For budgeting, try Mr money mustache. His family of 3 lives on under $25k per year very comfortably and he is retired early. He discusses budgeting extensively.

mpowell August 12, 2013 at 3:12 pm

He is hiding something in his accounting. The numbers don’t work. At this point, he is could be making more off his blog than his prior career. Personal finance blogging can be incredibly lucrative.

Cliff August 12, 2013 at 2:13 pm

You are right about the median of course, I was thinking of mean

GinSlinger August 12, 2013 at 2:53 pm

“most minimum wage workers (71%) are out of their teens.”

But the same raw number can be restated as “three percent of workers receiving hourly compensation make minimum wage.”

Or, one could say “98% of those over 19 and employed make more than minimum wage.”

Jan August 12, 2013 at 3:00 pm

But if one’s argument is that the minimum wage doesn’t actually have to feasibly support someone, because it is mostly just teenagers who still rely on their parents anyway, then that argument is less compelling when you see that those earners are in fact not mostly teenagers.

GinSlinger August 12, 2013 at 3:27 pm

But the 71% number does nothing to determine whether minimum wage is enough to support someone either. It does refute the “vast majority” talk, insofar as it destroys “vast.” But, if one includes 65+ with 24 and under (as the OP and BLS do respectively), one gets roughly 53%, which is a majority.

And, this still doesn’t get us anywhere near to actual earnings talk. Is minimum-wage-only or minimum-wage-plus-tips a better description of the 71/53%? Seems an important question since 51% of minimum wage or below earners are in leisure/hospitality (certainly doesn’t mean they’re all making tips, but it’s not being addressed by those who point at the raw numbers). There are a number of ways that actual income can be higher than minimum wage in a minimum-wage paying job (sales bonuses/commissions, piece work, other [non-monetary] compensations) that are being ignored. Unless one believes that employment law enforcement is really so lax as to allow 56% of all minimum wage or below employees to be paid below minimum wage, it may be worth imagining what’s not being captured in the self-report surveys.

GinSlinger August 12, 2013 at 3:31 pm

for “71/53%” please read “71/47%.”

Bill August 12, 2013 at 7:16 am

If a person puts his head under water, he comes up for air.

If he can.

SlappyMcDuck August 12, 2013 at 7:34 am

Please explain to me why I should have sympathy for an adult making the minimum wage. How do you fail that hard?

Unlearningecon August 12, 2013 at 7:53 am
SlappyMcDuck August 12, 2013 at 8:20 am

definitely sounds representative of typical minimum wage workers who are not almost universally teenagers and low IQ middle aged people with long histories of godawful decisions

Therapsid August 12, 2013 at 8:25 am

Why shouldn’t you have sympathy for adults with low IQ’s?

Jan August 12, 2013 at 9:05 am

Teenagers are <10% of minimum wage workers. Latinos and blacks are much more likely to work in minimum wage jobs, does that mean they are much more often low IQ?

GinSlinger August 12, 2013 at 10:06 am

And teenagers (16-19, let alone that typically in terms of minimum wage conversations the upper bound is discussed is actually higher) make up less than 4% of the workforce or so. So it would seem that minimum wage is more likely for the teenage labor force.

And I’m not sure what is meant by “much more likely to work in minimum wage jobs.” It looks as though there are 0.6% fewer Whites than Blacks working at or below minimum wage, with 0.3% difference between Whites and Latinos (Asians are less likely to work for minimum wage than Whites). Any difference is probably problematic, but I don’t see a justification for “much more likely,” so if I’m missing your point, please expand.

Cliff August 12, 2013 at 10:49 am

Surely you know the answer to the question you raise is indisputably yes? No shortage of research on that subject. Not sure why you even ask it.

Jan August 12, 2013 at 1:30 pm

My point was that teenagers by no means make up a large share of minimum wagers, not that teenagers aren’t more likely than others to earn minimum wage.

Gin, you’re right. I was conflating low-wage jobs with minimum wage jobs. Blacks and Latinos are much more likely to be low-wage, (and low total income workers) but apparently there is not much difference across races for minimum wage jobs.

GinSlinger August 12, 2013 at 1:54 pm

Total number of US workers at minimum wage or below: 3,550,000 (12% of all workers paid hourly). Number of workers earning minimum wage 16-24: 1,797,000 (51% of all minimum wage workers). I’m using 24 here because it’s a division the BLS uses, and does a better job of capturing workers whose wages are not their primary source of survival (college students, and the recent graduate who receive parental support). I’d say over half is “large,” considering we’re talking about, in this case, 8 years versus 62 (16-78). (And even if the conversation is restricted to 16-19 for “teenagers,” they represent a quarter of those earning minimum wage in total, again the difference in population size must be considered.)

Note also, that this number includes all workers earning tips at servers’ wages–this can and likely does include bartenders making $30k/yr (from personal experience)–which may (or not) explain a good portion of that above 24.

Roy August 12, 2013 at 7:55 am

I’ve managed a cheap restaurant when I was younger, you’d be amazed at how screwed up some people who can work hard and with proper management are not by any means ZMP workers.

Marie August 12, 2013 at 9:14 am

This is the kind of thinking that gets us extensions for years on unemployment benefits.

R. Jones August 12, 2013 at 8:26 pm

No one said you have to worry about other people. It just something that most people understand intuitively.

Sam August 12, 2013 at 8:24 am

I visited Purdue earlier in the month and left feeling West Lafayette would really benefit from a minimum wage, because if anything comes close to Monopsony, its a university town. The student desk worker was paid only $7.25 an hour during an all-night shift. Fairly shocking to a Canadian with a local minimum wage of $10.30 an hour (local unemployment rate at 6.8%). Not to mention most jobs here pay above the minimum to start. I know for instance that my area McDonald’s and Walmart have a policy of paying the minimum + $0.15 to start, with scheduled pay raises ever 6-12 months.

I understand the arguments about the higher efficiency of direct transfers, but due to politics we live in a second-best world. I can assure you: The US’s minimum wage, and intense resistance to raising it, is absolutely mind boggling to an outsider.

Brandon Berg August 12, 2013 at 8:32 am

I worked the nighttime desk shift in college. I made minimum wage and was overpaid at that. Not that I did a particularly bad job—there just wasn’t much to do. 90% of the job was just being there on the off-chance that anything came up, so I was free to do my homework, browse the web, read books, whatever. I was basically being paid to sit at a desk and do stuff I would have done at home anyway. This kind of job is the worst possible example to argue for a higher minimum wage.

Dan Weber August 12, 2013 at 10:24 am

Yeah, a lot of campus jobs are subsidized in the fact that they even exist. The school hasn’t made a rational decision to fill or not fill those jobs, but rather to help those students who want a job to get one.

At least in the past they were very easy to get as well. When I first showed up on my campus I had a job within 24 hours by going to the food service office and asking for one.

The Anti-Gnostic August 12, 2013 at 8:46 am

The cost of living is also higher in Canada and you pay more taxes. Ergo, we could raise the minimum wage to $1,000/hr and people with fungible skills would still be making minimum wage at tedious, unrewarding jobs and living in rundown housing.

Jan August 12, 2013 at 8:58 am

The higher taxes and cost of living (very broad generalization, totally depends on which metro you are talking about) are not large enough to eat up that difference in wages. Also, Canadians pay a fraction of what our minimum wage workers do for health care.

Cliff August 12, 2013 at 10:51 am

Minimum wage workers are not on medicaid (i.e., Canadian single-payer system)?

jan August 12, 2013 at 12:55 pm

If you’re about FPL, you’re not on Medicaid in most states.

Jan August 12, 2013 at 12:56 pm

*above

sam August 12, 2013 at 6:10 pm

I’m confident the cost of living is not higher for Canadian students. Assuming you get no financial aid, tuition averages about $5500 a year. Further, most students would pay 0 income tax, and we get draw backs to reimburse what we pay in sales tax. My point was that West Lafayette revolves around Purdue. Purdue has an awful lot of monospony power relative to the bargaining power of students. Theory and evidence suggest a higher minimum wage in that town would lift wages without adding to unemployment.

Cliff August 12, 2013 at 10:52 am

It’s mind-boggling that we would want to actually help people instead of just feeling good about ourselves for supporting high minimum wages? I mean you would just feel so bad to know a college kid only made $7.25/hr, much better they be unemployed and have no way of supporting themselves- because then you don’t know about it!

AndrewL August 12, 2013 at 8:59 am

And here we go: http://singularityhub.com/2013/01/22/robot-serves-up-340-hamburgers-per-hour/

Pushing minimum wage down even farther.

AndrewL August 12, 2013 at 9:01 am

And for a little bit more money, the robot can even spit in the burger if it’s for a cop!

Paul F August 12, 2013 at 9:32 am

Ladder?

Alan Gunn August 12, 2013 at 10:14 am

Nobody should talk about the minimum wage without also discussing the earned income tax credit. Both increase the take-home pay of low wage workers. The EITC does it without giving employers an incentive to employ fewer unskilled people, it targets low-income workers who really are poor (as opposed to middle income kids with summer jobs), and it gets the money the workers get from taxpayers generally, rather than from the people who give jobs to unskilled workers. Is there any way in which an increase in the minimum wage is better than an equivalent increase in the EITC?

dan1111 August 12, 2013 at 10:32 am

The minimum wage has one advantage: its cost is hidden (and very hard to figure out). Which, from a political standpoint, is the same as being free.

mavery August 12, 2013 at 11:44 am

EITC is great except for the part when it peters off, creating higher effective marginal tax rates and a more “jagged” marginal tax rate curve in general. I still think like them more than national minimum wages (local minimum wages are a different story; elasticity for labor demand is likely very different at $7.50 in rural Alabama vs. Washington, DC), but they’re not a panacea.

Urso August 12, 2013 at 3:20 pm

Re locally adjusted minimum wage, notice that the NY legislature, which is (obviously) heavily tilted towards NYC, has raised the minimum wage to $9 statewide, not just in the city itself. Some of these poorer rural upstate counties, $9 an hour might be a significant employment disincentive. Seems like a golden opportunity for an econ grad student.

Bill August 13, 2013 at 9:18 am

Urso, You would have to control for the fact that ALL rural areas are in decline, unless there is natural gas under the property. In fact, where you see rural employment increase is in large factory farms which employ 50 mexican immigrants to milk cows, displacing local, smaller farmers.

Lee August 13, 2013 at 10:32 am

The EITC has a phase-out range, which means that effective marginal tax rates are often actually very high for individuals who earn lower-middle income wages (i.e. more than the minimum, but well below the median income. In fact, because other Federal and state benefits such as food stamps and Medicaid have similar phase-out ranges, the effective marginal tax rates for some of these individuals can near or even exceed 100%. Larry Kotlikoff has some simulations that show this in a paper somewhere, unfortunately I can’t seem to find it at the moment.

Cherie August 12, 2013 at 11:59 am

With an increase in the minimum wage, it doesn’t affect society the way politicians think it would because most are inexperienced workers. Majority entry-level and young people getting their first jobs will benefit but won’t necessarily need the increase because this group of people are still in school and/or living at home. They are less likely to need that increase despite the fact that everyone wants more money.
If a local mom and pop shop is paying minimum wage, they are more than likely unable to afford to pay their employees a higher minimum wage. It puts small businesses at risk because they have to raise prices to cover the cost of staffing entry-level. In addition, it’s impossible to live alone on a minimum wage salary which means they are at home with family’s help or roommates.
Another thing to look at is the cost of living, In some less expensive cities, it may be more than enough to live off of minimum wage. However in some areas like San Francisco, it’s next to impossible to survive independently without financial assistance.
I earn above the minimum wage and still find it difficult to make ends meet at times. So I imagine that for people who are actually receiving the minimum wage must have difficult lives.
Although a minimum wage increase would help those working entry level jobs, there are both pros and cons to each side of the argument. I do not encourage the raise because it’s not in the best interest of the economy and small businesses.

Nathan W August 13, 2013 at 11:06 am

That’s rich … “they won’t necessarily need the increase because they are still in school and/or living at home”

You think that students and people who live at home don’t need money? Were you ever a student? Were you ever an adult living at home?

And if a small business can’t afford to pay the minimum wage, then why are we concerned about them, from the macro perspective? If the economy only permits business to operate which can earn a profit at higher wages, then businesses will have to be set up in a way that the positions can create value in excess of that higher minimum wage. And sorry, ’cause if your business is that marginal you’re probably having a hard time too, but hey, at least you can go work for a decent minimum wage!

Minimum wages force an economy to make effective use of human capital, particularly at the lower end of the wage spectrum, which is often dominated by extremely hard working people in jobs that can be done by “anyone”. Be like an Australian: respect the labour of anyone who works like a dog, and pay him like you know he’s worth it. If you can’t earn your minimum wage, don’t bother coming to work, and let social services pick up the tab.

Maurice de Sully August 13, 2013 at 6:35 pm

Is this comment for real?

rvman August 12, 2013 at 1:33 pm

How old is this data? For $0.90 to be a 23% raise, the minimum would have to be $3.80, which it hasn’t been since around 1991. Given that the minimum went to $3.80 in April 1990 and to $4.25 in April 1991, I hope most people making the minimum of $3.80 got a raise within a year.

tms August 13, 2013 at 10:06 am

I wonder why we have been focusing on the minimum wage solution rather than the labor union solution?

Nathan W August 13, 2013 at 10:59 am

If someone is not capable of earning the minimum wage then they need help, and society should not leave them stranded, plain and simply because we can afford to (not too far) and it’s right.

However, if someone is earning the minimum wage, the presumably benefit from the presence of the minimum wage, which allows them to capture a greater share of the benefits flowing from their labour.

I do not think minimum wages should be high enough to make life easy. If you didn’t have to at least break a sweat or do some working smarter to pay your cable TV bill, then some people would not develop their skills to increase their ability to locate economic opportunity. And nearly everyone gains in the long run when the system is set up in a way that forces people to earn higher wages to be employable.

A rendition of an argument in favour of minimum wages …

Nathan W August 13, 2013 at 11:07 am

Minimum wages help people and encourage businesses to create more value out of labour.

Hasdrubal August 15, 2013 at 11:52 am

Yes, and the way they increase value of labor is through increasing their investment in capital. I’m not sure that there are efficiency gains simply due to increases in input costs. So, it might be better for the economy as a whole or it might not. And simply increasing efficiency is only half of the process, the gains from that increase must be redistributed. Those low income workers who were replaced by burger flipping machines have to be compensated, but that’s not very politically feasible.

Efficiency gains through technological advancement ARE welfare enhancing and often or always make everyone wealthier. But there’s a big difference between:

1.) An industrial revolution that brings tractors to farms, drastically reducing the number of man hours needed to run a farm, but also leading to tons of new factories in cities creating everything from tractors to bread slicers, and
2.) A government mandated increase in the cost of labor, leading employers to buy previously overcosted machines because, although they’re no cheaper, they’re now relatively cheaper than people.

Nathan W August 13, 2013 at 11:08 am

Minimum wages help people “negotiate” for their share of benefits form their work, and encourage businesses to create more value out of labour.

Floccina August 13, 2013 at 5:13 pm

I worked from age 22 to age 29 at just a couple of $ above the minimum wage and I worked with many single mothers. I remember a conversation one time with one of them, we were talking about the myth that children are expensive and she said “If you got $20 left at the end of the week that you have enough to care for a child.” I think she was right, that is if you have a healthy child it costs very little to raise them.

BTW median PPP income in Japan is about $19,564.

Floccina August 13, 2013 at 5:15 pm

I am sorry about the multiple posts.

Comments on this entry are closed.

Previous post:

Next post: