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May 2014 Brief: Volume 21, Number 14

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Almost All of Us Used to Earn the Minimum Wage

 

by Deborah D. Thornton

 

 

Raising the minimum wage has been a topic of discussion all spring. Proponents decry the fact that it hasn’t been raised since 2009 and talk about “income inequality.” “Fairness” is guaranteed to be mentioned at least once. So how much is the minimum wage, who earns it, and why?

 

The federal minimum wage is $7.25 per hour, before overtime. When first established in 1938 it was 25 cents per hour.[1] In 1979, when the wage was $2.90, over 20 percent of workers were earning either at or below the minimum wage. I know – I was one of them. As a 19-year-old college student, I worked part-time during the summer at a fast-food restaurant, making the minimum wage, driving 30 miles each way in a 1976 Pinto, and wearing a polyester uniform.

 

Most of the workers who earn “at or below” minimum wage are those who earn tips, typically in the leisure and hospitality field, specifically in food service. To qualify as a tipped worker the person must make at least $30 per month in tips. Hourly wages for tipped workers are handled differently by individual states, but must be at least $2.13.[2] In Iowa the minimum cash pay per hour must be at least $4.35.[3]

 

Today, in contrast to 1979, only 4.3 percent of workers make the minimum wage or below, or about 3.3 million people nationwide.[4] According to the U.S. Department of Labor there are about 50,000 workers in Iowa in this category. Yet, two-thirds of us started out making minimum wage.[5]

 

What happened to us? Who are the workers making this wage in 2014?

 

In Iowa we have about 116,000 people or about 8 percent of our workforce in the official Leisure and Hospitality – Accommodation and Food Service sector, out of about 1.5 million total non-farm workers. The median hourly wage in this industry in Iowa is $13.10 per hour, according to Bureau of Labor Statistics (BLS) and Census Bureau data.[6] The 50,000 actually making “minimum wage” are only about 3 percent of our workers.

 

Unsurprisingly, the vast majority of minimum wage and tip workers are, as I was, young people. Within the young worker category of those 16-24 years old, only 19 percent earn minimum wage, or about 800,000 workers nationwide, and most of those are in the youngest sub-category of 16-19 year olds.[7] Over 80 percent of our young workers earn more than minimum wage – even with entry-level job skills and little work experience.

 

Three out of four only work part-time, again as I did, and the average total family incomes are almost $66,000. Most are enrolled in school, either college or high school. They are neither married nor the family’s main wage earner. The minimum wage job is generally an entry-level, learning position, and workers remain in it for less than a year. The person learns skills, proves their worth, and moves up.[8]

 

Only 4 percent of minimum wage workers are single parents working full-time, or about 2,000 people in Iowa. The stereotype of a minimum wage worker being a mother or father struggling to make ends meet is simply not true, in most cases.

 

But shouldn’t we do something to help these people, even if only a few? Yes, but what we need to do is help the minimum wage worker improve their skills and make their work more valuable, so that they may be promoted and move up. We should not take jobs and opportunity away from them!

 

The research on the minimum wage shows that when the wage is raised, the number of people hired goes down and many are fired or laid off. There are fewer entry-level jobs, fewer young people hired, and fewer opportunities to gain skills and move up.[9] At the same time, the competition for these jobs will increase. If the employer is forced to pay $10.00 hour for a job they know is only worth $7 or $8, they will hire the most skilled person available. If they have a choice, they will not hire the unskilled and uneducated.

 

With an unemployment rate of close to 7 percent nationwide, and an underemployment and discouraged worker population estimated to be as much as 15 percent, both the high school or college student and the struggling single parent will likely simply not be hired in the first place.[10]

 

Irrespective of the actual “minimum wage,” the average hourly wage in Iowa is $19.52 per hour, according to the BLS. This is a “livable” wage. Rather than artificially increasing the minimum wage we have to help the entry-level worker advance based on their ability and demonstrated qualifications. The Skilled Iowa Initiative ability certificates can help workers do this; so can job training at our community colleges. Programs such as iJAG – Iowa Jobs for America’s Graduates – help teach employment skills to high school students.

 

Raising the minimum wage will only result in fewer jobs and more people on unemployment. If you can’t get your first job, how can you get your second? Starting work at minimum wage is not a bad thing – almost all of us did. Not having a job at all is a very bad thing.

 

(Endnotes)
[1] James Sherk, “What is Minimum Wage: Its History and Effects on the Economy,” Testimony before Health, Education, Labor, and Pensions Committee, United States Senate, Heritage Foundation, June 25, 2013, <http://www.heritage.org/research/testimony/2013/06/what-is-minimum-wage-its-history-and-effects-on-the-economy> accessed on April 16, 2014.
[2] “Minimum Wages for Tipped Employees,” Wage and Hour Division, U.S. Department of Labor, January 2014, <http://www.dol.gov/whd/state/tipped.htm#Iowa> accessed on April 17, 2014.
[3] Ibid.
[4] “Characteristics of Minimum Wage Workers, 2013,” U.S. Bureau of Labor Statistics, BLS Reports, March 2014, <https://www.bls.gov> accessed on April 16, 2014.
[5] David Macpherson and William Even, “Wage Growth Among Minimum Wage Workers,” Employment Policies Institute, June 2004, pp. 3-5, <http://www.epionline.org/studies/mmacpherson_06-2004.pdf> accessed on April 16, 2014.
[6] “Minimum Wage Workers by State: Statistics, Totals,” Governing the States and Localities, April 2014, <http://www.governing.com/gov-data/economy-finance/minimum-wage-workers-by-state-statistics-2013-totals.html> accessed on April 16, 2014.
[7] “Characteristics of Minimum Wage Workers, 2013.”
[8] David Macpherson and William Even.
[9] David Neumark, J.M. Ian Salas, and William Wascher, “Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby With the Bathwater?,” National Bureau of Economic Research, Working Paper 18681, January 2013, p. 3, <http://journalistsresource.org/wp-content/uploads/2013/02/2013-paper.pdf> accessed on April 17, 2014.
[10] Laura Giuliano, “Minimum Wage Effects on Employment, Substitution, and the Teenage Labor Supply: Evidence from Personnel Data,” The Journal of Labor Economics, January 2013, Vol. 31, No. 1, pp. 155-194, <http://econpapers.repec.org/article/ucpjlabec/doi_3a10.1086_2f666921.htm> accessed on April 17, 2014.

 

Deborah D. Thornton is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact her at Public.Interest.Institute@LimitedGovernment.org.

 

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