The Minimum Wage

Sources:

2012 BLS Characteristics of Minimum Wage Workers

FEDERAL RESERVE BANK OF ST. LOUIS REVIEW MAY/JUNE 2005

Evidence on Wage Inequality, Worker Education, and Technology

Christopher H. Wheeler

The rise in U.S. wage inequality over the past two decades is commonly associated with an increase in the use of “skill-biased” technologies (e.g., computer equipment) in the workplace, yet relatively few studies have attempted to measure the direct link between the two. This paper explores the relationship among inequality, worker education levels, and workplace computer usage using a sample of 230 U.S. industries between 1983 and 2002. The results generate two primary conclusions: First, this rising inequality in the United States has been caused predominantly by increasing wage dispersion within industries rather than between industries. Second, within-industry inequality is strongly tied to both the frequency of computer usage among workers and the fraction of total
employment with a college degree. Both results lend support to the idea that skill-biased techno-logical change has been an important element in the rise of U.S. wage inequality.

This book provides a careful historical analysis of the co-evolution of educational attainment and the wage structure in the United States through the twentieth century. The authors propose that the twentieth century was not only the American Century but also the Human Capital Century. That is, the American educational system is what made America the richest nation in the world. Its educational system had always been less elite than that of most European nations. By 1900 the U.S. had begun to educate its masses at the secondary level, not just in the primary schools that had remarkable success in the nineteenth century.

The Business of the Minimum Wage

RAISING the minimum wage, as President Obama proposed in his State of the Union address, tends to be more popular with the general public than with economists.

I don’t believe that’s because economists care less about the plight of the poor — many economists are perfectly nice people who care deeply about poverty and income inequality. Rather, economic analysis raises questions about whether a higher minimum wage will achieve better outcomes for the economy and reduce poverty.

First, what’s the argument for having a minimum wage at all? Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving. If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone — perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines

Do Minimum Wages Fight Poverty?

David Neumark, William Wascher
NBER Working Paper No. 6127

The primary goal of a national minimum wage floor is to raise the incomes of poor or near-poor families with members in the work force. However, estimates of employment effects of minimum wages tell us little about whether minimum wages are can achieve this goal; even if the disemployment effects of minimum wages are modest, minimum wage increases could result in net income losses for poor families. We present evidence on the effects of minimum wages on family incomes from matched March CPS surveys, focusing on the effectiveness of minimum wages in reducing poverty. The results show that over a one-to-two year period, minimum wages increase both the probability that poor families escape poverty and the probability that previously non-poor families fall into poverty. The estimated increase in the number of non-poor families that fall into poverty is larger than the estimated increase in the number of poor families that escape poverty, though this difference is not statistically significant. We also find that minimum wages tend to boost the incomes of poor families that remain below the poverty line. The evidence indicates that in the wake of minimum wage increases, some families gain and others lose. On net, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families. Given these findings it is difficult to make a distributional or equity argument for minimum wages.

Minimum Wages and Poverty

Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?
Joseph J. Sabia* and Richard V. Burkhauser

Using data drawn from the March Current Population Survey, we find that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates. When we then simulate the effects of a proposed federal minimum wage increase from $7.25 to $9.50 per hour, we find that such an increase will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour. Assuming no negative employment effects, only 11.3% of workers who will gain live in poor households, compared to 15.8%
from the last increase. When we allow for negative employment effects, we find that the working poor face a disproportionate share of the job losses. Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor.

Raising Minimum Wage Is Misguided Policy

The protests, ballot initiatives and other efforts aimed at the the minimum (or living) wage are not political events. They reflect a real economic problem: the growing distress of the millions of out-of-work and lower-wage workers trapped by a failed response to the Great Recession and the ensuing anemic recovery. Great distress and good intentions, however, are not the same as sensible policy.

With 11.3 million people looking for work, it is simply perverse to redistribute from the job seekers to the job holders.

Increasing the minimum wage is a misguided way to address the situation. It wouldn’t target those hurt the worst: the unemployed and low-skilled, and in fact would build bigger barriers for those without a job.

Primer: Minimum Wage and Combating Poverty

According to CPS data, in 2011 only 6.6 percent of people with a job were in families with incomes below federal poverty levels. Meanwhile, 27.5 percent of those who were unemployed were also in poverty. This means that if a person is unemployed and currently looking for work, he or she is over four times more likely to be in poverty than those who are employed. It is important to note, that this also does not account for unemployed people who stopped looking for work and dropped out of the labor force entirely.

Who Earns the Minimum Wage? Suburban Teenagers, Not Single Parents

Minimum-wage workers under 25 are typically not their family’s sole breadwinners. Rather, they tend to live in middle-class households that do not rely on their earnings. Generally, they have not finished their schooling and are working part-time jobs. Over three-fifths of them (62 percent) are currently enrolled in school.[5] These workers represent the largest group that would benefit directly from a higher minimum wage, provided they kept or could find a job.

The characteristics of the teenagers and young adults who earn the minimum wage or less support the notion that these minimum-wage workers rarely work to support children and their families: