Sunday, April 26, 2015

Surprising facts about the minimum wage

For years I've had fun at cocktail parties by asking this question: what percent of all the people who work in the U.S. are paid minimum wage or less? Of the hundreds of people I've asked, only one has come even close to the right answer. The vast majority of the answers I've received (try it yourself!) range from 10% to as much as 50%, when the correct answer is 2.3%. Most people mistakenly think the minimum wage affects a significant portion of the working population, and that's why politicians are able to exploit the minimum wage issue for political gain.

The facts can be found in a recent BLS publication: Characteristics of Minimum Wage Workers, 2014:

In 2014, 77.2 million workers age 16 and older in the United States were paid at hourly rates, representing 58.7 percent of all wage and salary workers. Among those paid by the hour, 1.3 million earned exactly the prevailing federal minimum wage of $7.25 per hour. About 1.7  million had wages below the federal minimum. Together, these 3.0 million workers with wages at or below the federal minimum made up 3.9 percent of all hourly paid workers. 

According to these BLS figures, there were roughly 131.5 million wage and salary workers in 2014, and the percentage of all the people working who were making minimum wage or less was (1.3 + 1.7)/131.5 = 2.3%. Further, only 1.3% of all those who work in the U.S. made less than the minimum wage (1.7/131.5), and 97.7% of those who work made more than the minimum wage without any help from government fiats.

But here's where it gets really interesting: "Almost two-thirds of workers earning the minimum wage or less in 2014 were employed in service occupations, mostly in food preparation and serving-related jobs." In other words, 66% of those making minimum wage or less work in restaurants, where they undoubtedly take home more than minimum wage if you count their tip income. That means last year there were only about 1 million people in the U.S. who actually made minimum wage or less. More than 99% of those who worked last year took home more than the minimum wage for their efforts.

So the next time you're at a cocktail party, ask the person next to you to guess the percentage of U.S. workers that earn minimum wage or less. You won't be lying when you tell them it's 1% or less, and if they don't believe you, tell them the facts can be found in a recent BLS publication.

Raising the minimum wage would presumably benefit less than 1% of the working population, but it would probably make it harder for young and inexperienced workers to get a job. It's already hard enough: the unemployment rate for those aged 16-19 is over 20%. Politicians should be lobbying to reduce or eliminate the minimum wage, not increase it.

(This post updates some facts from a similar post early last year.)

HT: Mark Perry, who adds more color to the issue.


vito said...

How many people make just a little over the minimum wage and are not making a Living wage?I dont know how anyone can live in most big cities making even 10 dollars a hour.
Thanks always like your posts and I was wondering how many people are really making a living wage.

Scott Grannis said...

The whole concept of a "living wage" is fraught with problems. It could never be measured objectively. For example, who knows what a "living wage" is for someone who lives with their parents? It's certainly different than it is for someone who has to support several dependents.

Wages are what they are, they are a function of a worker's productivity: his or her contribution to the success of a business.

Government can never decide what wages should be.

Anonymous said...

A lot of those restaurant workers work at fast-food places where they don't get tips. So you can't really assume that everyone getting minimum wage in that sector gets more than the minimum wage.

Still, it's a pretty low percentage.

Scott Grannis said...

Unknown: you make a good point. I confess to not frequenting fast food places almost ever, so I overlooked that segment of the industry. But as you note, even adjusting for that we are talking about very low percentages.

David Mayhew said...

The report calculates based off of the Federal minimum wage. So really it only applies to people living in states where the minimum wage is at or less than the Federal level. What would be the number who are earning the minimum wage applicable in whatever area they live?

vito said...

Hello Scott I always had delivery jobs and they paid more when I lived in California and those same types of jobs paid less when I lived in Texas where the cost of living was less and did not restrict my life style.If the pay was lower in California that would have been another story. The market forces will dictate wages but cost of living should also be considered for entry level pay.

steve said...

the correct level of minimum wage is $0. how arrogant of anyone to dictate what someone be paid to enter the workforce. if someone wants to work for $5/hr and garner valuable work experience, they should be allowed. furthermore, how the HELL does one determine the "correct" minimum level? the arrogance/ignorance of the left never ceases to amaze me.

vito said...

I guess my point was missed How many people are just making a little over the minimum wage?Thinking that people making 8 hour are not making minimum wage is not objective.
Next time you see the person who delivers the U.S mail, UPS or FDX or fixes your phone from VZ ask them how much they make a hour.I know that large corporations like these pay different wages for the same work depending on the region you work within.

b karunakar said...
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