Who are minimum wage earners?
On January 3, 2000 Senator Ted Kennedy asked Vice President Al Gore if he would advocate the minimum wage on his campaign trail for President. Kennedy told him, “This is a women’s issue because the majority of minimum wage earners are women. It’s a children’s issue. It’s a civil rights issue. It’s a fairness issue.”
Fourteen years later the minimum wage is still an issue fraught with heated arguments pro and con. Let’s take a look at both sides of the fence but first think about your own town and the people in it that work behind the cash registers in fast food and retail stores alike. Are they mostly women? Are they teens making money on their first job experience? Are they retirees keeping busy? Well, what do you see right in your own backyard?
35 million Americans make minimum wage, three quarters of them over twenty. Females over 20 account for 48.3 percent while males in this category equal 31.2 percent. WWW.raisetheminimumwage.org/pages/demographics
WWW.fivethirtyeight.com/features/when-living-wage-is-minimum-wage/ Of all the research accumulated so far I respect Scott Winship’s. Check out parts of his work at the Manhattan Institute. Also included are other ideas out there about minimum wage.
Scott Winship is the Walter B. Wriston Fellow at the Manhattan Institute. Previously a fellow at the Brookings Institution, his areas of expertise include living standards and economic mobility, inequality, and insecurity. Earlier in his career, Winship was research manager of the Economic Mobility Project of The Pew Charitable Trusts and a senior policy advisor at Third Way. His research has been published in National Affairs, National Review, The Wilson Quarterly, Breakthrough Journal, and Real Clear Markets, among other outlets. Winship received a B.A. in sociology and urban studies from Northwestern University and a Ph.D. in social policy from Harvard University.
But that doesn’t mean that, broadly, pay for low-wage workers fell. We could leave the minimum wage at $7.25 in perpetuity and it would become a progressively smaller fraction of the average wage. Perhaps in one hundred years $7.25 would be just 10 percent of the average. But if so, it would almost surely be the case that no one would be working for $7.25 anymore. In other words, what matters is not whether an arbitrary threshold in the wage distribution is rising or falling but whether low-skill workers in general are seeing wage growth. Minimum-wage workers are poorer than they used to be, but there are fewer of them. In 1979, 8 percent of workers made the federal minimum wage (or less), but by 2011, just 3 percent did. Comparing minimum wage workers over time compares the worst-off 3 percent today to the worst-off 8 percent in 1979.
In contrast, comparing equally-sized groups of low-wage workers shows that they are better off than in the past. The Economic Policy Institute data indicates that the 10th percentile of hourly wages—the pay of the worker poorer than 90 percent of workers and better-paid
than just 10 percent of them—rose 5 percent from 1979 to 2011. The increase was 12 percent for the 20th percentile and 16 percent for the median worker. This is not a dramatic rise in inequality between the poorest workers and the typical worker. The median worker made 1.8 times the worker at the 10th percentile in 1979, but the ratio rose only to 2.0 by 2011. Even the ratio of the 80th percentile of hourly wages to the 10th percentile rose just from 2.8 to 3.5.
Finally, note that a minimum wage worker in 1968 or 1979 paid higher taxes than she does today, despite payroll taxes going up. In no small measure, the decline in taxes for low-wage workers reflects the expansion of the Earned Income Tax Credit, now the largest antipoverty program for nonelderly Americans (benefitting one-quarter of American households), nonexistent in 1968 and practically so in 1979. Note, too, that today (unlike in 1968 or 1979) a large share of the workforce is subject to a higher state minimum wage than the federal minimum. In 2007, the federal minimum wage was only beginning to rise from its all-time low, but 70 percent of the workforce enjoyed a higher state minimum. Essentially no one did prior to the late 1980s.
What about the fact that “low-wage workers” (those earning under $10 per hour in Dube’s piece) are older and better educated today than in the past? Because the workers below any threshold are a smaller and smaller group as wages rise, we should not be surprised to see the demographics of low-wage workers change over time. But the finding that the share of low-wage workers that had attended college rose from 25 percent to 43 percent between 1979 and 2011 is less striking when you know that the share of all workers having attended college rose from 33 percent to 59 percent (Tables P-16 and P-17). Similarly, while the share of low-wage workers that are teens fell from 26 percent to 12 percent, the share of all workers that are under twenty fell from 9 percent to 4 percent (Table 5.2).
Different people will ultimately differ in their willingness to increase the minimum wage given the same information about its likely costs and benefits. Informed decisions, however, require accurate information.
Original Source: http://www.economics21.org/commentary/how-solid-case-raising-minimum-wage
Employment rates among women have increased across the industrialized world, coinciding with rising educational attainment, delayed marriage, and declining fertility. All indications are that these trends reflect the preferences of many women for the satisfaction, independence, and additional income provided by a job over the under-valued and, for many women, unrewarding life of fulltime homemaking and childrearing.
More to the point, the CPS trends for households broken down by the marital status of the head all show sizable income gains without any household-size adjustments. For all households, the increase in this measure of pre-tax, post-transfer income was 30 percent from 1979 to 2007. For households in which the head was married, the increase was 44 percent. Among households where the spouses were separated, median income grew by 34 percent; for those with a widowed head, 50 percent; among those with a divorced head, 33 percent. Finally, among households with a never-married head, the increase was 34 percent from 1979 to 2007, and the increase for households with a never-married male head was 29 percent.
Foundational Research on Minimum Wage and Job Growth
Study: Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply (2000)
Summary: A follow-up study by David Card and Alan Krueger that repeats their 1994 analysis, but uses official government data to determine employment figures. The study finds that the minimum wage increase in New Jersey did not affect employment in fast-food restaurants after New Jersey’s 1991 increase or after the 1996-1997 federal increases eliminated the differences in minimum wages between the two states.
Study: Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania (1994)
Summary: A landmark study published by David Card and Alan Krueger in the American Economic Review examining employment at fast-food restaurants on both sides of the New Jersey-Pennsylvania border after New Jersey raised its minimum wage to $5.05 an hour while Pennsylvania’s minimum wage held constant. The authors conducted a phone survey of over 400 fast-food restaurants and found no evidence that the increase in the minimum wage in New Jersey led to job loss—in fact they found employment increased in fast-food restaurants in New Jersey. For this and related research, Card was awarded the John Bates Clark medal in 1995—the so-called “junior Nobel prize,” granted by the American Economics Association every two years to the best economist under forty.
Why Do Minimum Wage Increases Not Reduce Employment?
#1) The vast majority of low-wage workers are employed by large corporations, not small businesses:
Study: Big Business, Corporate Profits, and the Minimum Wage (2012)
Summary: An analysis of Census Bureau data finds that roughly two thirds (66 percent) of low-wage workers are employed by large companies with over 100 employees, not small businesses. Furthermore, the largest low-wage employers – including retail and fast food chains such as Wal-Mart and McDonalds – are earning strong profits today and can afford higher wages.
New York Times, January 2013: “Efforts to raise the minimum invariably run into arguments that employers, especially small businesses, cannot afford to pay a higher wage. But the evidence shows that most low-wage employees work for large companies, which have largely recovered from the recession and have reinstituted generous pay packages for executives.” (Source)
#2) There is significant savings that result from paying higher wages – including reduced employee turnover and increased productivity – and these savings help offset the cost to employers of a minimum wage increase.
Study: Why “Good Jobs” Are Good for Retailers (2012)
The economist and former treasury secretary Lawrence Summers warned recently of “the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks. Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead.”
Microsoft founder Bill Gates warned recently, “you have to be a bit careful: If you raise the minimum wage, you’re encouraging labor substitution and you’re going to go buy machines and automate things.”
Summary: Harvard Business Review study by MIT Professor Zeynep Ton documents how major retailers such as Trader Joe’s and Costco benefit for higher sales revenue and profits than their low-wage competitors by investing in their employees, which reduces turnover and boosts productivity. For example, the starting wage at Trader Joe’s ranges between $40,000 and $60,000 per year, more than twice what many of its competitors offer, and yet the sales revenue per square foot at Trader Joe’s are three times higher than the average U.S. supermarket.
Costco CEO Craig Jelinek, March 2013: “We pay a starting hourly wage of $11.50 in all states where we do business, and we are still able to keep our overhead costs low. An important reason for the success of Costco’s business model is the attraction and retention of great employees. Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty. We support efforts to increase the federal minimum wage.” (Source)
Study: Minimum Wage Shocks, Employment Flows, and Labor Market Frictions (2012)
Summary: Study by economists at the University of California-Berkeley, University of Massachusetts-Amherst, and University of North Carolina-Chapel Hill finds sharps reductions in employee turnover in the first nine months following a minimum wage increase on the state level.
Study: Living Wages and Economic Performance (2003)
Summary: Examines the effects of a wage increase for workers at the San Francisco Airport, finding that annual turnover among security screeners plunged from 95 percent to 19 percent when their hourly wage rose from $6.45 to $10 per hour. After wages increased at the airport under a living wage policy, 35 percent of employers reported improvements in work performance, 47 percent reported better employee morale, 44 percent reported fewer disciplinary issues, and 45 percent reported that customer service had improved.
#3) Raising the minimum wage boosts consumer spending, generating higher sales revenue for local businesses and promoting economic growth.
Study: Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-Needed Boost. (2013)
Summary: An analysis by the Economic Policy Institute shows that the Fair Minimum Wage Act of 2013, which would raise the federal minimum wage to $10.10 per hour and index it to inflation, would generate more than $30 billion in new economic activity and support the creation of 140,000 new full-time jobs as businesses expand to meet increased consumer demand.
Mayor Michael Bloomberg, February 2012, “Raising the minimum wage will put much-needed cash in the pockets of more than 1.2 million New Yorkers, who will spend those extra dollars in local stores.” (Source)
Study: Poor Sales, Not High Wages, Worry Small Businesses (2012)
Summary: An analysis of polling by the National Federation of Independent Businesses shows that small business owners consistently cite low sales revenue as their main economic concern, with concern over wage costs ranking as a minor consideration even through the Great Recession. Study concludes that the real concern among small businesses is not that their low-wage workers earn too much, but that their customers earn too little.
The Bottom Line on Minimum Wage and Job Growth:
Two decades of rigorous economic research have found that raising the minimum wage does not result in job loss. While the simplistic theoretical model of supply and demand suggests that raising wages reduces jobs, the way the labor market functions in the real world is more complex. Researchers and businesses alike agree today that the weight of the evidence shows no reduction in employment resulting from minimum wage increases.
The Economist, November 2012: “Evidence is mounting that moderate minimum wages can do more good than harm. […] Bastions of orthodoxy, such as the OECD, a rich-country think-tank, and the International Monetary Fund, now assert that a moderate minimum wage probably does not do much harm and may do some good. Their definition of moderate is 30-40% of the median wage. Britain’s experience suggests it might even be a bit higher.” (Source)
Crain’s New York Business, February 2012: ““Critics of [the minimum wage] proposal are making the same arguments as the last time the Legislature increased the minimum wage, in 2004. The hike to $7.15 an hour from the federal minimum of $5.15 was phased in over three years. If the change had a cataclysmic effect on businesses that depend heavily on minimum-wage workers, we certainly missed it. Objections . . . while meriting consideration, are essentially objections to the very existence of a minimum wage, which has been a fixture in the U.S. since 1938 and has never stopped our economy from flourishing.” (Source)