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3
THE MINIMUM WAGE:
INCREASING THE REWARD FOR WORK
March 2000
A REPORT BY THE NATIONAL ECONOMIC COUNCIL
WITH THE ASSISTANCE OF THE COUNCIL OF ECONOMIC ADVISERS
AND THE OFFICE OF THE CHIEF ECONOMIST, U.S. DEPARTMENT OF LABOR
EXECUTIVE SUMMARY
Raising the Minimum Wage by $1 to $6.15 an Hour Would Potentially Benefit More
than 10 Million American Workers-Most of Whom are Adult Workers. An analysis of
labor market data shows that in 1999, 10.1 million hourly paid workers made between $5.15
and $6.14 an hour, and thus would potentially benefit from a $1 increase in the minimum
wage. About 69 percent of these workers are adults (age 20 or over), about 60 percent are
women, about 45 percent worked full-time, and about 33 percent were parents with children
under 18 years old. In 1997, the earnings of average minimum wage workers accounted for
54 percent of their family's total earnings.
Raising the Minimum Wage to $6.15 an Hour Would Restore the Real Value to What It
Was in 1982. Since it was first established in 1938, the minimum wage has been increased
19 times. Between January 1981 and March 1990, the minimum wage was fixed at $3.35 an
hour, while prices rose by nearly 50 percent. The proposal to raise the minimum wage by $1
over two years would restore the real value of the minimum wage to what it was in 1982.
Increasing the Minimum Wage Would Help Hard-Pressed Families Pay for Groceries,
Rent, and Other Necessities. Raising the minimum wage from $5.15 to $6.15 would raise
the annual earnings of a full-time worker by about $2,000 a year. A study of spending by
low-income families found that they spend on average about $300 per month on groceries
and about $400 per month on rent. Thus, for a full-time worker, the minimum wage increase
would translate into enough money to pay for nearly 7 months of groceries or 5 months of
rent.
Recent Increases in the Minimum Wage Had No Discernable Negative Effect on
Employment. Since the minimum wage increase in 1996, the economy has created more
than 10 million jobs and the unemployment rate has fallen from 5.2 percent in September
1996 to 4.1 percent in February 2000, near its lowest level in thirty years. Labor market
trends for workers most affected by the minimum wage increase-including younger
workers, workers with lower educational levels, and minorities-also show no negative
impact of the minimum wage on employment. Numerous careful economic studies,
including ones by David Card and Alan Krueger, have shown that increasing the minimum
wage has no negative effect on employment. Recent research has even suggested that higher
wages can increase employment, because they increase employers' ability to attract, retain,
and motivate workers. And they benefit workers by increasing the reward to work.
The Minimum Wage Plays a Key Role in Ensuring That All Workers Share in a
Growing Economy. In the last seven years, incomes have grown nearly as strongly at the
bottom as at the top of the income distribution, ending a decades long increase in inequality.
In contrast, in the previous two decades inequality widened, as poorer families saw their
incomes decline in real terms. Research has shown that the decline in the real value of the
minimum wage from 1979 to 1988 was responsible for approximately 24 percent of the
increase in wage inequality experienced by men and about 32 percent of the increase in wage
inequality for women.
The Minimum Wage Has Helped Reduce the Welfare Caseload. By increasing the
reward to work, a higher minimum wage attracts new workers into the workforce. An
analysis by the Council of Economic Advisers showed that higher federal and state minimum
wages were responsible for 10 to 16 percent of the decline in welfare caseloads between
1996 and 1998.
The Minimum Wage and the Earned Income Tax Credit Are Complementary. A
working parent with two children earning the minimum wage in 1993 made $10,563 with the
EITC (in 1998 inflation-adjusted dollars)-well below the poverty line. With the 1993
increase in the EITC and the 90 cent increase in the minimum wage in 1996 and 1997, a
comparably situated family in 1998 was above the poverty line-making $13,268-a 26
percent inflation-adjusted increase in its standard of living.
ii
1. INTRODUCTION
The American economy is in the midst of the longest economic expansion in history. Since
January 1993, the economy has created nearly 21 million new jobs. The unemployment rate in
February 2000 was 4.1 percent, near its lowest level in three decades. The overall performance
of the economy has only grown stronger over time. In the last four years, labor productivity has
grown at a 2.9 percent annual rate and GDP has grown at a 4.4 percent annual rate. At the same
time, the underlying core inflation rate in 1999 was 1.9 percent-the lowest rate since 1965.
In contrast to the previous twenty years, the strong economy of the last seven years has
contributed to shared growth across all income groups and substantial poverty reduction. As
indicated in Chart 1, incomes have grown nearly as strongly at the bottom as at the top of the
Chart 1: Growth in Mean Real Family Income by Quintile
income distribution, ending a decades long
3
increase in inequality. The poverty rate has
1993-98
fallen to 12.7 percent, the lowest level since
2
1973-93
1979. The strong labor market has been
Average annual percent change
beneficial to people across the economic and
1
demographic spectrum. In 1999, the
unemployment rates for African Americans
and Hispanics fell to the lowest levels ever
0
recorded.
-1
Strong growth is necessary but not sufficient
Bottom
2nd quintile
3rd quintile
4th quintile
Top quintile
to produce sustained income gains and
quintile
poverty reduction. Also important are
Source Department of Commerce(Bureauof the Cersus).
policies that insure that all workers are
rewarded for their work. The Clinton Administration has consistently sought to make work pay
through a range of policies, including expanding the Earned Income Tax Credit in 1993,
reforming welfare in order to increase work incentives, and increasing investments in child care
for working parents. And an additional key element was the 1996-97 increase in the minimum
wage. These policies interact in a beneficial way for low-income families. For instance, a
working parent with two children earning the minimum wage in 1993 made $10,563 with the
EITC (in 1998 inflation-adjusted dollars), well below the poverty threshold. With the 1993
increase in the EITC and the 90 cent increase in the minimum wage in 1996 and 1997, a
comparably situated family in 1998 was above the poverty level-making $13,268-a 26
percent inflation-adjusted increase in their standard of living.
This report examines the role that the minimum wage plays in increasing the reward to work and
boosting incomes for workers at the bottom of the earnings distribution. The report also
examines the recent evidence about the effect of the minimum wage on employment.
2. BACKGROUND ON THE MINIMUM WAGE
A federal minimum wage of 25 cents was first established as a part of the Fair Labor Standards
Act of 1938 (FLSA). Since its inception, the federal minimum wage has been increased 19
times, and the FLSA has been amended numerous times to expand the workers covered by the
minimum wage provision. In recent years, about two thirds of wage and salary workers have
been covered by the FLSA minimum wage. (Workers who are exempt most often are in
executive, administrative, and professional occupations.)
The federal minimum wage reached its highest value in real terms in 1968, at $7.67 in 1999
dollars (see Chart 2). With five increases during the 1970s, the minimum wage held its value at
approximately $6.60. The last increase of the 1970s left the inflation-adjusted value at $6.66.
From January 1981 through March 1990, the minimum wage was unchanged, while at the same
time prices rose by nearly 50 percent. This eroded the real value of the minimum wage at the
end of the 1980s to $4.50. The dollar level of the minimum wage was increased from $3.35 to
$3.80 in 1990 and to $4.25 in 1991. In real terms the value of the minimum wage was still well
below the 1968 peak.
Even with the modest inflation of the 1990s, the minimum wage lost value, falling to $4.65 in
1995. By 1996, the minimum wage adjusted for inflation was approaching a 40-year low.
Inflation had largely wiped out the last increase in the minimum wage in 1990. In August 1996,
Congress passed and President Clinton signed into law a two-step increase, lifting the minimum
wage from $4.25 to $5.15. The first step of that increase went into effect October 1, 1996 and the
second step on September 1, 1997. More recently, President Clinton proposed to increase the
minimum wage by $1 over two years, raising it to $6.15. If the full increase were implemented
in 2001, this would restore the real value of the minimum wage to its 1982 level, about 75
percent of the 1968 peak value.
Chart 2: Real Level of the Minimum Wage
8.00
7.50
7.00
6.50
1999 Dollars
6.00
5.50
5.00
4.50
4.00
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
Source Department of Lobor (B urequof Lobor Statistics).
2
3. THE 1996-97 MINIMUM WAGE INCREASE
The $0.90 increase in the minimum wage in 1996 and 1997 is estimated to have benefited almost
10 million American workers. 1 This section examines the impact of this increase on
employment and the distribution of wages.
Effect on Employment
Since the 1996-97 increase in the minimum wage, the American economy-and labor markets in
particular-have continued to perform very strongly. Between September 1996 and February
2000, 10.2 million jobs were created-an average of 248,000 per month, even stronger job
growth than in the previous 2 years. In retail trade, which has a large concentration of minimum
wage workers, there were 1.4 million new jobs. Over this same period the overall
unemployment rate fell from 5.2 percent to 4.1 percent.
In addition, welfare rolls have declined 44 percent since welfare reform was enacted in August
1996. A report by the Council of Economic Advisers (1999) suggests that 10 to 16 percent of
the welfare caseload decline from 1996 to 1998 was attributable to the increases in federal and
state minimum wages. Other important factors were changes in welfare policy and the decline in
unemployment.
The strong labor market of the last four
years, however, is not definitive proof that
Chart 3: Civilian Unemployment Rates by Education
10
the minimum wage has no adverse effects on
employment. Numerous other factors affect
8
Did not complete high school
the job market, and workers paid at or near
Minimum age increase
the minimum wage are a relatively small
(October 1996)
6
fraction of the overall workforce. A better
Percent
High school
graduate, no college
test of the impact of minimum wage
4
increases is the experience of workers most
likely to be affected by the increases. An
2
Minimum w age increase
(September 1997)
examination of data for these workers also
shows no discernable negative effect of the
0
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
last minimum wage increase. For example,
Source Department of Lobor (B urequot Lobor Statistics).
adults (age 25 and above) with lower levels
Chart 4: Employment to Population Ratios by Education
of education generally have relatively low
70
wages. As Chart 3 indicates, though,
High school
65
graduate, no college
quarterly unemployment rates have generally
60
declined for both high school graduates with
Minimum age increase
no college and those with less than a high
55
(October 1996)
school education. Chart 4 shows, similarly,
Percent
Minimum age increase
50
(September 1997)
that over the past five years the employment
45
to population ratio generally held steady or
40
Did not complete high school
increased for both groups of adults. No
35
visible disruptions to these trends are
apparent following either the 1996 or 1997
30
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
minimum wage increases. Comparable
Source Department of Labor (B u equof Lobor Statistics).
I
See Bernstein and Schmitt (1998).
3
observations pertain for teenage workers in general, and for African American teens specifically
(Charts 5 and 6). 2
These data provide evidence that the minimum wage increase did not have a major negative
effect on employment. Still, as suggestive as this evidence is, it does not provide rigorous
statistical tests that control for the myriad of factors that affect employment. Section 5 reviews
the evidence from recent economic studies.
Chart 5: Civilian Unemployment Rates, Ages 16-19
Chart 6: Employment to Population Ratios, Ages 16-19
45
50
40
All races
45
35
30
African Americans
40
Minimum age increase
Minimum age increase
Minimum age increase
(September 1997)
Percent
25
(October 1996)
20
Percent
35
(October 1996)
All races
African Americans
15
30
10
Minimum age increase
25
5
(September 1997)
0
20
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
Source Department of Lobor (B requof Lobor Statistics).
Source Department of Lobor (B recuof Lobor Statistics).
Effect on Wages for Low-income Workers
Recent increases in the minimum wage in the U.S. have improved the distribution of wages at
the low end of the distribution. Fortin and Lemieux (1997) demonstrate the importance of the
minimum wage in boosting wages at the low end, and reducing wage inequality. They show that
the decline in the real value of the minimum wage from 1979 to 1988 was responsible for
approximately 24 percent of the increase in wage inequality experienced by men and about 32
percent of the increase in wage inequality for women. Card and Krueger (1995) conclude that
the 1990-91 minimum wage increase reversed about 30 percent of the increase in wage
inequality that occurred during the previous decade.
The effect of the recent minimum wage increase-in October 1996 and September 1997-on the
wage distribution is clearly evident in wage data. Statistics tabulated from the Current
Population Survey (CPS), show that in the first two quarters of 1996, when the federal minimum
wage was $4.25, about 10 percent of all hourly wage workers earned less than $5.00. 3 The
minimum wage increase (to $5.15) clearly increased wages in the low end of the distribution; by
the first two quarters of 1998, the fraction of workers earning less than $5.00 declined to 2
percent.
2 One careful statistical analysis (Neumark, 1999) shows that the 1996-97 minimum wage increases had no effect on
the general employment of 16-19 year olds.
3 The analysis presented in this paper excludes salaried and other non-hourly workers. Research has shown,
however, that a relatively smaller number and share of salaried workers and others not paid by the hour have
earnings that, when translated into hourly rates, are at or below the minimum wage. BLS does not routinely
estimate hourly earnings for nonhourly workers because of data concerns that arise in producing these estimates.
See Haughen and Mellor (1990) for further information.
4
Chart 7 illustrates the effect of the 1996-97 minimum wage increases on the low end of the wage
distribution ($3.00 to $7.99) for just one demographic group of interest, women who maintain
families and have at least one child present in
Chart 7: Wage Distribution, $3.00 to $7.99,
the household. 4 For 1996, the distribution of
Women who Maintain Families with Children
12
1998
wages shows that a relatively small share of
10
1996
workers with hourly wages earn between
$3.00 and $3.99. 5 In contrast, a substantial
8
fraction earned between $4.00 and $4.49.
Percent
(The chart shows the distribution by 50-cent
6
increments.) This jump, of course, reflects the
4
clustering of workers whose wages were at or
near the minimum wage. The comparable
2
distribution for 1998 indicates a shift that was
0
clearly due to the change in minimum wage
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
policy. In the first two quarters of 1996,
Source Coundi of Economic Advisers tobulation of Current Population Survey data
about 9 percent of these women earned less
than $5.00. By the first two quarters of 1998, this fraction declined to 2 percent.
At the same time, an increasing share of workers earned wages above $6 and $7, suggesting that
the increase in the minimum wage had spillover benefits for workers above the minimum wage.
Such spillover effects have been documented more formally in research by Grossman (1983),
Katz and Krueger (1992), and Card and Krueger (1994).
4. RAISING THE MINIMUM WAGE TO $6.15: WHO IS DIRECTLY AFFECTED?
Raising the minimum wage from $5.15 to $6.15 would raise the annual earnings of a full-time
worker by about $2,000 a year. A study of spending by low-income families found that they
spend on average about $300 per month on groceries and about $400 per month on rent. Thus,
for a full-time worker, the minimum wage increase would translate into enough money to pay for
nearly 7 months of groceries or 5 months of rent. This section provides a detailed examination
of the workers that would benefit from a further increase in the minimum wage.
Characteristics of Minimum Wage Workers in 1999
Evidence about workers who currently earn the minimum wage is available from unpublished
tabulations provided by the Bureau of Labor Statistics (BLS) based on data from the CPS. In
1999, 72.3 million workers were paid at hourly rates, representing about 61 percent of wage and
salary workers. It is estimated that 3.3 million workers-4.6 percent of all workers who are paid
an hourly rate-earn a wage at or below the current $5.15 Federal minimum. Of these 3.3
million workers, about 1.1 million reported a wage at exactly $5.15, while the remainder, 2.2
4
A family maintained by a woman is one in which the householder (person in whose name the housing unit is rented
or owned) is female, and no spouse is present. Here we examine such households when a child under 18 is present.
5 The presence of workers with reported wages below the minimum wage does not necessarily indicate violations of
the Fair Labor Standards Act. There are several reasons why the reported wage for a worker may be below the
Federal minimum. First, certain workers are exempt from the minimum wage provisions of the law, including
workers for whom tips might serve to supplement the hourly wages received. Second, there may be a misreporting
or rounding in the survey responses. When the minimum wage is $5.15, for example, a large number of workers
report a wage of exactly $5.00.
5
million, earned a wage less than $5.15. A study by Bernstein and Schmitt (1998) indicated that
in 1997 the earnings of average minimum wage workers accounted for 54 percent of their
family's total earnings.
Selected demographic and economic characteristics for these workers are presented in Table 1.
The statistics indicate that about 70 percent of workers earning $5.15 or less were age 20 or
older. 64 percent of these workers are women.
How Many Workers would be Affected by an Increase in the Minimum Wage?
Using the CPS data described above, it is possible to examine the number and characteristics of
workers who would potentially receive a pay raise from a $1.00 increase in the federal minimum
wage. Table 2 presents the number of individuals who currently have an hourly wage between
$5.15 and $6.14. This table indicates that:
There are approximately 10.1 million workers within this wage range-about 14 percent of
all workers paid an hourly rate.
69 percent of the affected workers are adults age 20 or older.
About 60 percent of these workers are women.
16 percent are African American and 20 percent are Hispanic.
37 percent are the household head or a spouse who contributes to family income.
Other respected studies have looked at the question of who would potentially benefit from an
increase in the minimum wage, focusing on family and income characteristics. Some highlights
from these studies are:
Parents with children under 18 years old comprise almost 33 percent of those potentially
affected. (Bernstein, Hartmann, and Schmitt, 1999).
Over 50 percent of the proposed gains would go to households with incomes less than
$25,000 per year. (Bernstein, Hartmann, and Schmitt, 1999).
45 percent of the gains go to families with incomes below 200 percent of the poverty level,
and an additional 19 percent to families with income below 300 percent of the poverty level.
(Burkhauser, 1999).
There are other workers who would also likely benefit from a $1.00 minimum wage increase in
addition to those workers that report hourly wages between $5.15 and $6.14. As noted above, a
number of the over 900,000 workers who report a $5.00 per hour wage are also likely to be
workers currently at the minimum wage, but mis-reporting their earnings. There is also
evidence, as discussed earlier, that workers who earn wages just above the new minimum can see
their pay rise as a result of the minimum wage increase. To help gauge the size of this group in
the event of a minimum wage increase to $6.15, Table 2 also presents the number of workers
with hourly wages between $6.15 and $7.14. In 1999 there were approximately 8.4 million such
workers, many of whom could indirectly benefit from a minimum wage increase.
Appendix A presents a breakdown of the number of workers that would benefit by state. While
the most populous states would have the greatest number of workers in these wage categories
(California, for example, has almost 1.5 million workers with wages between $5.15 and $6.14)
the evidence suggests that thousands of workers in every state would potentially benefit from a
$1.00 increase in the minimum wage.
6
Table 1. Employed Wage and Salary Workers Paid Hourly Rates with Earnings At or
Below Minimum Wage, 1999
Number of workers
Percent
Percent distribution
(in thousands)
of
workers
in
Total
Total
demogra
Characteristic
Paid
Paid
paid
phic
$5.15 or
paid
$5.15 or
hourly
hourly
group
less
less
who
rates
rates
earn
$5.15 or
less
Total, 16 years and over
72,306
3,340
100.0
100.0
4.6
AGE
16 to 19 years
6,600
1,006
9.1
30.1
15.2
20 and over
65,706
2,334
90.9
69.9
3.6
SEX
Men, 16 years and over
36,073
1,214
49.9
36.3
3.4
Women, 16 years and over
36,233
2,126
50.1
63.7
5.9
RACE AND HISPANIC ORIGIN
White
58,999
2,698
81.6
80.8
4.6
African American
10,126
515
14.0
15.4
5.1
Hispanic
9,402
513
13.0
15.4
5.5
FULL- AND PART-TIME STATUS
Full-time workers
54,931
1,320
76.0
39.5
2.4
Part-time workers
17,227
2,010
23.8
60.2
11.7
FAMILY RELATIONSHIP
Husbands
17,609
242
24.4
7.2
1.4
Wives
16,996
622
23.5
18.6
3.7
Women who maintain families
5,395
288
7.5
8.6
5.3
Men who maintain families
1,815
50
2.5
1.5
2.8
Other persons
30,491
2,082
42
62
28
Note: Data exclude the incorporated self-employed. Detail for the above race and Hispanic-origin groups will not
sum to totals because data for the "other races" group are not presented and Hispanics are included in both the white
and black population groups. Also note that the distinction between full- and part-time workers is based on hours
usually worked. These data will not sum to totals because full- or part-time status on the principal job is not
identifiable for a small number of multiple jobholders.
Source: U.S. Department of Labor (Bureau of Labor Statistics), unpublished tabulations from the Current Population
Survey, 1999 annual averages.
7
Table 2. Distribution of Wage and Salary Workers Paid Hourly Rates, 1999
Percent of
workers in
Number of
Percent
workers (in
demographic
distribution
Characteristic
thousands)
group who fall
in wage
category
$5.15 -
$6.15 -
$5.15 -
$6.15 -
$5.15 -
$6.15 -
$6.14
$7.14
$6.14
$7.14
$6.14
$7.14
Total, 16 years and over
10,093
8,370
100.0
100.0
14.0
11.6
AGE
16 to 19 years
3,133
1,482
31.0
17.7
47.5
22.5
20 and over
6,960
6,888
69.0
82.3
10.6
10.5
SEX
Men, 16 years and over
4,076
3,405
40.4
40.7
11.3
9.4
Women, 16 years and over
6,018
4,965
59.6
59.3
16.6
13.7
RACE AND HISPANIC ORIGIN
White
8,027
6,668
79.5
79.7
13.6
11.3
African American
1,602
1,336
15.9
16.0
15.8
13.2
Hispanic
1,989
1,447
19.7
17.3
21.2
15.4
FULL- AND PART-TIME STATUS
Full-time workers
4,563
5,301
45.2
63.3
8.3
9.7
Part-time workers
5,512
3,048
54.6
36.4
32.0
17.7
FAMILY RELATIONSHIP
Husbands
851
990
8.4
11.8
4.8
5.6
Wives
1,821
1,962
18.0
23.4
10.7
11.5
Women who maintain families
855
807
8.5
9.6
15.8
15.0
Men who maintain families
171
167
1.7
2.0
9.4
9.2
Other persons
6,396
4,445
63
53
84
58
Note: Data exclude the incorporated self-employed. Detail for the above race and Hispanic-origin groups will not
sum to totals because data for the "other races" group are not presented and Hispanics are included in both the white
and black population groups. Also note that the distinction between full- and part-time workers is based on hours
usually worked. These data will not sum to totals because full- or part-time status on the principal job is not
identifiable for a small number of multiple jobholders.
Source: U.S. Department of Labor (Bureau of Labor Statistics), unpublished tabulations from the Current Population
Survey, 1999 annual averages.
8
5. ECONOMIC RESEARCH ON THE EFFECT OF THE MINIMUM WAGE ON
EMPLOYMENT
The impact of a moderate increase in the minimum wage on employment is a key question for
policymakers. Clearly, while an increase in the minimum wage benefits those workers who
receive it, some have raised concerns that these direct gains may be partially or fully offset if the
minimum wage increase leads to greater unemployment among lower income workers. Section
3 discussed some of the aggregate evidence from the 1996-97 experience. This section discusses
the economic theory and empirical evidence behind the effects of the minimum wage on
employment.
Recent Economic Theory on the Impact of the Minimum Wage on Employment
The traditional economic theory of supply and demand predicts that an increase in the minimum
wage above the market rate would increase the cost faced by employers, causing them to reduce
employment. Recent theoretical analyses, however, have challenged this conventional wisdom,
examining reasons why some employers may respond to a moderately higher minimum wage by
expanding employment. Specifically, higher wages can help firms attract better workers,
motivate them to work harder, and retain them for longer periods. (While firms always have the
option of increasing their pay rate, some managers leave wages unchanged because of reluctance
to increase average labor costs.) At least five papers-recently published in peer-reviewed
economics journals-rigorously study this logic. 6 These papers show that a moderate minimum
wage can have a positive effect on employment. In general, then, an increase in the minimum
wage has an ambiguous effect on employment. The only way to determine the effect in practice
is to look at the empirical evidence.
Recent Empirical Evidence on Employment Effects
In an important book, economists David Card and Alan Krueger (1995) provide a critical
analysis of previous research, and present their own extensive exploration of the wide variation
in minimum wages across states found in the late 1980s and early 1990s. Their work shows that
there were no negative employment effects even for teenagers, the group for whom any
disemployment effects should be most apparent. Similarly, their detailed analysis fails to find
disemployment effects of a minimum wage in the retail trade or in employment of fast food
restaurants. More recent studies confirm these results.
Employment in Fast Food Restaurants. To determine the impact of minimum wages on
employment, one would like to gather data from firms prior to a minimum wage increase and see
how firms adjust employment relative to other similar firms for which the minimum wage does
not increase. New work by Card and Krueger (forthcoming) comes closest to doing this. In
1992, New Jersey imposed a higher minimum wage, and yet the neighboring state of
Pennsylvania did not. And then in 1996 an increase in the federal minimum wage affected
Pennsylvania but not New Jersey. These two episodes provide an experiment that can be used to
infer the effects of a minimum wage increase on employment. Card and Krueger use the BLS's
employer-reported payroll files from 1991 through 1997 to evaluate employment growth of fast
6 See Bhaskar and To (1999), Dickens, Machin, and Manning (1999), Lang and Kahn (1998), Manning (1995), and
Rebitzer and Taylor (1995). Additional discussion of these models are found in Chapter 11 of Card and Krueger
(1995).
9
food restaurants in New Jersey and nearby counties in Pennsylvania. They conclude that the
minimum wage changes had very little (and possibly slightly positive) effect on employment.⁷
The British Experience. Dickens, Machin, and Manning (1999) studied the British experience
with minimum wages. They found strong evidence that [minimum wages] compressed the
distribution of earnings and no evidence that they have reduced employment."
6. CONCLUSION
The evidence is convincing that moderate increases in the minimum wage have provided
meaningful additional earnings for many of America's most hard-pressed working families with
no discernible negative employment effects. Increasing the minimum wage is one of the ways
that government can help ensure that everyone continues to share in the benefits of growth.
When the minimum wage was fixed from 1981 to 1990, the wages and incomes of poorer
workers fell in real terms. Thanks to the 1996-97 minimum wage increase, today the minimum
wage is helping to ensure that a single parent with two children does not have to raise his or her
children in poverty.
The minimum wage is just one component of an overall strategy for insuring that all families
benefit from the nation's economic growth. The President's proposed expansion in the Earned
Income Tax Credit-to increase benefits for families with three or more children, reduce the
marriage penalty, and reduce the phaseout rate-would enhance the value of a higher minimum
wage, especially for families with more children and thus greater needs. At the same time, the
President is committed to continuing to make important investments in people. Since 1993, the
budget for education and training programs has nearly doubled and the President is proposing
record increases for a number of key education programs, including Head Start, in his FY 2001
budget. Together, these policies are an investment in continued strong and shared economic
growth.
7 While some critics of Card and Krueger expressed concern about their data collection, the most recent research
uses BLS employment records and finds basically the same results.
10
REFERENCES
Bernstein, Jared, Heidi Hartmann, and John Schmitt. 1999. "The Minimum Wage Increase: A
Working Woman's Issue." Economic Policy Institute Issue Brief 133, Washington, D.C.
Bernstein, Jared and John Schmitt. 1998. Making Work Pay: The Impact of the 1996-97
Minimum Wage Increase. Economic Policy Institute, Washington, D.C.
Bhaskar, V. and Ted To. 1999. "Minimum Wages for Ronald McDonald Monopsonies: A
Theory of Monopsonistic Competition." The Economic Journal 109 (April): 190-203.
Burkhauser, Richard V. and Sarah G. Blanding. 1999. "A Review of Recent Evidence on the
Effect of the Minimum Wage on the Working Poor," (paper presented at the Low Pay
Commission's International Minimum Wage Symposium, London, England).
Card, David and Alan Krueger. 1994. "Minimum Wages and Employment: A Case Study of the
Fast Food Industry in New Jersey and Pennsylvania." American Economic Review, 84: 772-793.
- 1995. Myth and Measurement. Princeton: Princeton University Press.
-
1999. "A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the
Fast-Food Industry with Representative Payroll Data." Forthcoming, American Economic
Review.
Council of Economic Advisers. 1999. "The Effects of Welfare Policy and the Economic
Expansion on Welfare Caseloads: An Update." Executive Office of the President of the United
States.
Dickens, Richard, Stephen Machin, Alan Manning. 1999. "The Effects of Minimum Wages on
Employment: Theory and Evidence from Britain." Journal of Labor Economics 17(1): 1-22.
Fortin, Nicole and Thomas Lemieux. 1997. "Institutional Changes and Rising Wage Inequality:
Is There a Linkage?" Journal of Economic Perspectives 11(2): 75-96.
Grossman, J.B. 1983. "The Impact of the Minimum Wage on Other Wages." Journal of Human
Resources 18: 359-378.
Haugen, Steven E. and Earl F. Mellor. "Estimating the Number of Minimum Wage Workers."
Monthly Labor Review January 1990.
Katz, Lawrence and Alan Krueger. 1992. "The Effects of the Minimum Wage on the Fast Food
Industry." Industrial and Labor Relations Review 46: 6-12.
Lang, Kevin and Shulamit Kahn. 1998. "The Effect of the Minimum-Wage Laws on the
Distribution of Employment: Theory and Evidence." Journal of Public Economics 69: 67-82.
Manning, A. 1995. "How Do We Know Real Wages Are Too High?" Quarterly Journal of
Economics 110(4): 1111-25.
11
Neumark, David. 1999. "The Employment Effects of Recent Minimum Wage Increases:
Evidence from a Pre-Specified Research Design." National Bureau of Economic Research
Working Paper 7171, June.
Rebitzer, James and Lowell Taylor. 1995. "The Consequences of Minimum Wage Laws: Some
New Theoretical Ideas." Journal of Public Economics 56(2): 245-55.
12
Appendix: Distribution of Wage and Salary Workers Paid Hourly Rates by State, 1999
Number (in thousands)
Percent of All Wage and Salary
Workers
$5.15 to $6.14
$6.15 to $7.14
$5.15 to $6.14
$6.15 to $7.14
Total
10,093
8,370
13.9
11.6
Alabama
202
146
18.1
13.1
Alaska
9
13
5.5
7.6
Arizona
200
157
15.2
11.9
Arkansas
130
101
20.9
16.2
California
1,463
1,023
17.4
12.1
Colorado
79
92
7.3
8.4
Connecticut
62
70
7.5
8.6
Delaware
22
21
10.8
10.0
DC
12
12
10.0
10.7
Florida
597
530
15.5
13.8
Georgia
267
248
13.1
12.3
Hawaii
47
29
15.0
9.4
Idaho
58
45
15.6
12.3
Illinois
428
354
13.2
10.8
Indiana
180
209
9.8
11.4
Iowa
103
91
11.2
9.9
Kansas
123
96
15.6
12.3
Kentucky
157
161
14.2
14.7
Louisiana
297
123
25.9
10.7
Maine
45
39
11.8
10.4
Maryland
125
137
9.5
10.5
Massachusetts
161
162
9.6
9.7
Michigan
341
312
11.3
10.3
Minnesota
115
121
8.0
8.4
Mississippi
146
74
22.7
11.5
Missouri
172
169
11.9
11.8
Montana
54
32
21.5
12.7
Nebraska
67
68
13.2
13.6
Nevada
60
60
11.2
11.3
New Hampshire
29
31
8.2
8.5
New Jersey
205
187
10.6
9.8
New Mexico
75
39
18.0
9.1
New York
566
395
14.8
10.3
North Carolina
247
223
12.4
11.2
North Dakota
34
29
18.3
15.9
Ohio
427
356
12.7
10.6
Oklahoma
170
126
19.6
14.5
Oregon
35
184
3.7
19.7
Pennsylvaina
454
338
13.8
10.3
Rhode Island
37
25
13.4
9.3
South Carolina
153
116
14.9
11.3
South Dakota
33
29
15.2
13.7
Tennessee
208
216
13.6
14.2
Texas
929
653
18.5
13.1
Utah
61
84
10.1
14.0
Vermont
21
20
12.4
11.5
Virginia
218
207
13.6
12.8
Washington
180
158
10.9
9.6
West Virgina
106
60
22.2
12.8
Wisconsin
157
177
8.9
10.0
Wyoming
25
19
17.8
13.8
Note: Workers in the $5.15 to $6.14 category would be directly affected by a $1.00 increase in the minimum wage.
Those in the $6.15 to $7.14 category could be affected by spillovers.
Source: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population
Survey, 1999.
13
Percentage of workers paid hourly rates earning
between $5.15 and $6.14 per hour, by State
(U.S. percentage = 14.0 percent)
1999 annual averages
Mountain
West
New England
North Central
WASH.
East
North Central
MAINE
MONT.
N.D.
Middle
!
VT.
ORE.
MINN.
Atlantic
N.H.
AMT
MASS.
IDAHO
WIS.
MICH.
S.D.
N.Y.
R.I.
WYO.
CONN.
IOWA
PA.
NEB.
OHIO
N.J.
NEV.
ILL.
IND.
MD.
CALIF
UTAH
DEL.
COLO.
KAN.
MO.
W.VA.
I
I
KY.
VA.
D.C.
TENN.
N.C.
ARIZ.
N.M.
OKLA.
ARK.
S.C.
South Atlantic
Pacific
MISS.
ALA.
GA.
TEX.
LA.
20.0% or over
FLA.
15.0% 19.9%
ALASKA
East
10.0% 14.9%
HAWAII
South Central
5.0% 9.9%
West
4.9% or below
South Central
Source: Bureau of Labor Statistics
THE MINIMUM WAGE:
INCREASING THE REWARD FOR WORK
March 2000
A REPORT BY THE NATIONAL ECONOMIC COUNCIL
WITH THE ASSISTANCE OF THE COUNCIL OF ECONOMIC ADVISERS
AND THE OFFICE OF THE CHIEF ECONOMIST, U.S. DEPARTMENT OF LABOR
EXECUTIVE SUMMARY
Raising the Minimum Wage by $1 to $6.15 an Hour Would Potentially Benefit More
than 10 Million American Workers-Most of Whom are Adult Workers. An analysis of
labor market data shows that in 1999, 10.1 million hourly paid workers made between $5.15
and $6.14 an hour, and thus would potentially benefit from a $1 increase in the minimum
wage. About 69 percent of these workers are adults (age 20 or over), about 60 percent are
women, about 45 percent worked full-time, and about 33 percent were parents with children
under 18 years old. In 1997, the earnings of average minimum wage workers accounted for
54 percent of their family's total earnings.
Raising the Minimum Wage to $6.15 an Hour Would Restore the Real Value to What It
Was in 1982. Since it was first established in 1938, the minimum wage has been increased
19 times. Between January 1981 and March 1990, the minimum wage was fixed at $3.35 an
hour, while prices rose by nearly 50 percent. The proposal to raise the minimum wage by $1
over two years would restore the real value of the minimum wage to what it was in 1982.
Increasing the Minimum Wage Would Help Hard-Pressed Families Pay for Groceries,
Rent, and Other Necessities. Raising the minimum wage from $5.15 to $6.15 would raise
the annual earnings of a full-time worker by about $2,000 a year. A study of spending by
low-income families found that they spend on average about $300 per month on groceries
and about $400 per month on rent. Thus, for a full-time worker, the minimum wage increase
would translate into enough money to pay for nearly 7 months of groceries or 5 months of
rent.
Recent Increases in the Minimum Wage Had No Discernable Negative Effect on
Employment. Since the minimum wage increase in 1996, the economy has created more
than 10 million jobs and the unemployment rate has fallen from 5.2 percent in September
1996 to 4.1 percent in February 2000, near its lowest level in thirty years. Labor market
trends for workers most affected by the minimum wage increase-including younger
workers, workers with lower educational levels, and minorities-also show no negative
impact of the minimum wage on employment. Numerous careful economic studies,
including ones by David Card and Alan Krueger, have shown that increasing the minimum
wage has no negative effect on employment. Recent research has even suggested that higher
wages can increase employment, because they increase employers' ability to attract, retain,
and motivate workers. And they benefit workers by increasing the reward to work.
The Minimum Wage Plays a Key Role in Ensuring That All Workers Share in a
Growing Economy. In the last seven years, incomes have grown nearly as strongly at the
bottom as at the top of the income distribution, ending a decades long increase in inequality.
In contrast, in the previous two decades inequality widened, as poorer families saw their
incomes decline in real terms. Research has shown that the decline in the real value of the
minimum wage from 1979 to 1988 was responsible for approximately 24 percent of the
increase in wage inequality experienced by men and about 32 percent of the increase in wage
inequality for women.
The Minimum Wage Has Helped Reduce the Welfare Caseload. By increasing the
reward to work, a higher minimum wage attracts new workers into the workforce. An
analysis by the Council of Economic Advisers showed that higher federal and state minimum
wages were responsible for 10 to 16 percent of the decline in welfare caseloads between
1996 and 1998.
The Minimum Wage and the Earned Income Tax Credit Are Complementary. A
working parent with two children earning the minimum wage in 1993 made $10,563 with the
EITC (in 1998 inflation-adjusted dollars)-well below the poverty line. With the 1993
increase in the EITC and the 90 cent increase in the minimum wage in 1996 and 1997, a
comparably situated family in 1998 was above the poverty line-making $13,268-a 26
percent inflation-adjusted increase in its standard of living.
ii
1. INTRODUCTION
The American economy is in the midst of the longest economic expansion in history. Since
January 1993, the economy has created nearly 21 million new jobs. The unemployment rate in
February 2000 was 4.1 percent, near its lowest level in three decades. The overall performance
of the economy has only grown stronger over time. In the last four years, labor productivity has
grown at a 2.9 percent annual rate and GDP has grown at a 4.4 percent annual rate. At the same
time, the underlying core inflation rate in 1999 was 1.9 percent-the lowest rate since 1965.
In contrast to the previous twenty years, the strong economy of the last seven years has
contributed to shared growth across all income groups and substantial poverty reduction. As
indicated in Chart 1, incomes have grown nearly as strongly at the bottom as at the top of the
Chart 1: Growth in Mean Real Family Income by Quintile
income distribution, ending a decades long
3
increase in inequality. The poverty rate has
1993-98
fallen to 12.7 percent, the lowest level since
2
1973-93
1979. The strong labor market has been
Average annual percent change
beneficial to people across the economic and
1
demographic spectrum. In 1999, the
unemployment rates for African Americans
and Hispanics fell to the lowest levels ever
0
recorded.
Strong growth is necessary but not sufficient
-1
Bottom
2nd quintile
3rd quintile
4th quintile
Top quintile
to produce sustained income gains and
quintile
poverty reduction. Also important are
Source Department of the Census).
policies that insure that all workers are
rewarded for their work. The Clinton Administration has consistently sought to make work pay
through a range of policies, including expanding the Earned Income Tax Credit in 1993,
reforming welfare in order to increase work incentives, and increasing investments in child care
for working parents. And an additional key element was the 1996-97 increase in the minimum
wage. These policies interact in a beneficial way for low-income families. For instance, a
working parent with two children earning the minimum wage in 1993 made $10,563 with the
EITC (in 1998 inflation-adjusted dollars), well below the poverty threshold. With the 1993
increase in the EITC and the 90 cent increase in the minimum wage in 1996 and 1997, a
comparably situated family in 1998 was above the poverty level-making $13,268-a 26
percent inflation-adjusted increase in their standard of living.
This report examines the role that the minimum wage plays in increasing the reward to work and
boosting incomes for workers at the bottom of the earnings distribution. The report also
examines the recent evidence about the effect of the minimum wage on employment.
2. BACKGROUND ON THE MINIMUM WAGE
A federal minimum wage of 25 cents was first established as a part of the Fair Labor Standards
Act of 1938 (FLSA). Since its inception, the federal minimum wage has been increased 19
times, and the FLSA has been amended numerous times to expand the workers covered by the
minimum wage provision. In recent years, about two thirds of wage and salary workers have
been covered by the FLSA minimum wage. (Workers who are exempt most often are in
executive, administrative, and professional occupations.)
The federal minimum wage reached its highest value in real terms in 1968, at $7.67 in 1999
dollars (see Chart 2). With five increases during the 1970s, the minimum wage held its value at
approximately $6.60. The last increase of the 1970s left the inflation-adjusted value at $6.66.
From January 1981 through March 1990, the minimum wage was unchanged, while at the same
time prices rose by nearly 50 percent. This eroded the real value of the minimum wage at the
end of the 1980s to $4.50. The dollar level of the minimum wage was increased from $3.35 to
$3.80 in 1990 and to $4.25 in 1991. In real terms the value of the minimum wage was still well
below the 1968 peak.
Even with the modest inflation of the 1990s, the minimum wage lost value, falling to $4.65 in
1995. By 1996, the minimum wage adjusted for inflation was approaching a 40-year low.
Inflation had largely wiped out the last increase in the minimum wage in 1990. In August 1996,
Congress passed and President Clinton signed into law a two-step increase, lifting the minimum
wage from $4.25 to $5.15. The first step of that increase went into effect October 1, 1996 and the
second step on September 1, 1997. More recently, President Clinton proposed to increase the
minimum wage by $1 over two years, raising it to $6.15. If the full increase were implemented
in 2001, this would restore the real value of the minimum wage to its 1982 level, about 75
percent of the 1968 peak value.
Chart 2: Real Level of the Minimum Wage
8.00
7.50
7.00
6.50
1999 Dollars
6.00
5.50
5.00
4.50
4.00
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
Source Department of Lobor (B ureau of Lobor Statistics).
2
3. THE 1996-97 MINIMUM WAGE INCREASE
The $0.90 increase in the minimum wage in 1996 and 1997 is estimated to have benefited almost
10 million American workers. 1 This section examines the impact of this increase on
employment and the distribution of wages.
Effect on Employment
Since the 1996-97 increase in the minimum wage, the American economy-and labor markets in
particular-have continued to perform very strongly. Between September 1996 and February
2000, 10.2 million jobs were created-an average of 248,000 per month, even stronger job
growth than in the previous 2 years. In retail trade, which has a large concentration of minimum
wage workers, there were 1.4 million new jobs. Over this same period the overall
unemployment rate fell from 5.2 percent to 4.1 percent.
In addition, welfare rolls have declined 44 percent since welfare reform was enacted in August
1996. A report by the Council of Economic Advisers (1999) suggests that 10 to 16 percent of
the welfare caseload decline from 1996 to 1998 was attributable to the increases in federal and
state minimum wages. Other important factors were changes in welfare policy and the decline in
unemployment.
The strong labor market of the last four
Chart 3: Civilian Unemployment Rates by Education
years, however, is not definitive proof that
10
the minimum wage has no adverse effects on
employment. Numerous other factors affect
8
Did not complete high school
the job market, and workers paid at or near
Mnimumw age increase
the minimum wage are a relatively small
(October 1996)
6
fraction of the overall workforce. A better
Percent
High school
graduate, no college
test of the impact of minimum wage
4
increases is the experience of workers most
likely to be affected by the increases. An
2
Minimum age increase
(September 1997)
examination of data for these workers also
shows no discernable negative effect of the
0
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
last minimum wage increase. For example,
Source Department of Lobor (Burequof Labor Statistics)
adults (age 25 and above) with lower levels
Chart 4: Employment to Population Ratios by Education
of education generally have relatively low
70
wages. As Chart 3 indicates, though,
High school
65
graduate, no college
quarterly unemployment rates have generally
60
declined for both high school graduates with
Minimum age increase
55
no college and those with less than a high
(October 1996)
school education. Chart 4 shows, similarly,
Percent
Minimum age increase
50
(September 1997)
that over the past five years the employment
45
to population ratio generally held steady or
Did not complete high school
40
increased for both groups of adults. No
35
visible disruptions to these trends are
30
apparent following either the 1996 or 1997
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
minimum wage increases. Comparable
Source Department of Lobor (B uearof Labor Stdistics).
I
See Bernstein and Schmitt (1998).
3
observations pertain for teenage workers in general, and for African American teens specifically
(Charts 5 and 6). 2
These data provide evidence that the minimum wage increase did not have a major negative
effect on employment. Still, as suggestive as this evidence is, it does not provide rigorous
statistical tests that control for the myriad of factors that affect employment. Section 5 reviews
the evidence from recent economic studies.
Chart 5: Civilian Unemployment Rates, Ages 16-19
Chart 6: Employment to Population Ratios, Ages 16-19
45
50
40
All races
45
35
30
African Americans
40
Minimum age increase
Minimum age increase
Minimum age increase
(September 1997)
Percent
25
(October 1996)
20
Percent
35
(October 1996)
All races
African Americans
15
30
10
Minimum age increase
25
5
(September 1997)
0
20
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
Source Department of Lobor (B urecu of Labor Statistics).
Source Department of Lobor (B ureauof Lobor Statistics)
Effect on Wages for Low-income Workers
Recent increases in the minimum wage in the U.S. have improved the distribution of wages at
the low end of the distribution. Fortin and Lemieux (1997) demonstrate the importance of the
minimum wage in boosting wages at the low end, and reducing wage inequality. They show that
the decline in the real value of the minimum wage from 1979 to 1988 was responsible for
approximately 24 percent of the increase in wage inequality experienced by men and about 32
percent of the increase in wage inequality for women. Card and Krueger (1995) conclude that
the 1990-91 minimum wage increase reversed about 30 percent of the increase in wage
inequality that occurred during the previous decade.
The effect of the recent minimum wage increase-in October 1996 and September 1997-on the
wage distribution is clearly evident in wage data. Statistics tabulated from the Current
Population Survey (CPS), show that in the first two quarters of 1996, when the federal minimum
wage was $4.25, about 10 percent of all hourly wage workers earned less than $5.00. 3 The
minimum wage increase (to $5.15) clearly increased wages in the low end of the distribution; by
the first two quarters of 1998, the fraction of workers earning less than $5.00 declined to 2
percent.
2 One careful statistical analysis (Neumark, 1999) shows that the 1996-97 minimum wage increases had no effect on
the general employment of 16-19 year olds.
3 The analysis presented in this paper excludes salaried and other non-hourly workers. Research has shown,
however, that a relatively smaller number and share of salaried workers and others not paid by the hour have
earnings that, when translated into hourly rates, are at or below the minimum wage. BLS does not routinely
estimate hourly earnings for nonhourly workers because of data concerns that arise in producing these estimates.
See Haughen and Mellor (1990) for further information.
4
Chart 7 illustrates the effect of the 1996-97 minimum wage increases on the low end of the wage
distribution ($3.00 to $7.99) for just one demographic group of interest, women who maintain
families and have at least one child present in
Chart 7: Wage Distribution, $3.00 to $7.99,
the household. 4 For 1996, the distribution of
Women who Maintain Families with Children
12
1998
wages shows that a relatively small share of
1996
workers with hourly wages earn between
10
$3.00 and $3.99. 5 In contrast, a substantial
8
fraction earned between $4.00 and $4.49.
Percent
(The chart shows the distribution by 50-cent
6
increments.) This jump, of course, reflects the
4
clustering of workers whose wages were at or
near the minimum wage. The comparable
2
distribution for 1998 indicates a shift that was
0
clearly due to the change in minimum wage
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
policy. In the first two quarters of 1996,
Source Cound of Economic Advisers tobulation of Current Population Survey data
about 9 percent of these women earned less
than $5.00. By the first two quarters of 1998, this fraction declined to 2 percent.
At the same time, an increasing share of workers earned wages above $6 and $7, suggesting that
the increase in the minimum wage had spillover benefits for workers above the minimum wage.
Such spillover effects have been documented more formally in research by Grossman (1983),
Katz and Krueger (1992), and Card and Krueger (1994).
4. RAISING THE MINIMUM WAGE TO $6.15: WHO IS DIRECTLY AFFECTED?
Raising the minimum wage from $5.15 to $6.15 would raise the annual earnings of a full-time
worker by about $2,000 a year. A study of spending by low-income families found that they
spend on average about $300 per month on groceries and about $400 per month on rent. Thus,
for a full-time worker, the minimum wage increase would translate into enough money to pay for
nearly 7 months of groceries or 5 months of rent. This section provides a detailed examination
of the workers that would benefit from a further increase in the minimum wage.
Characteristics of Minimum Wage Workers in 1999
Evidence about workers who currently earn the minimum wage is available from unpublished
tabulations provided by the Bureau of Labor Statistics (BLS) based on data from the CPS. In
1999, 72.3 million workers were paid at hourly rates, representing about 61 percent of wage and
salary workers. It is estimated that 3.3 million workers-4.6 percent of all workers who are paid
an hourly rate-earn a wage at or below the current $5.15 Federal minimum. Of these 3.3
million workers, about 1.1 million reported a wage at exactly $5.15, while the remainder, 2.2
4 A family maintained by a woman is one in which the householder (person in whose name the housing unit is rented
or owned) is female, and no spouse is present. Here we examine such households when a child under 18 is present.
5 The presence of workers with reported wages below the minimum wage does not necessarily indicate violations of
the Fair Labor Standards Act. There are several reasons why the reported wage for a worker may be below the
Federal minimum. First, certain workers are exempt from the minimum wage provisions of the law, including
workers for whom tips might serve to supplement the hourly wages received. Second, there may be a misreporting
or rounding in the survey responses. When the minimum wage is $5.15, for example, a large number of workers
report a wage of exactly $5.00.
5
million, earned a wage less than $5.15. A study by Bernstein and Schmitt (1998) indicated that
in 1997 the earnings of average minimum wage workers accounted for 54 percent of their
family's total earnings.
Selected demographic and economic characteristics for these workers are presented in Table 1.
The statistics indicate that about 70 percent of workers earning $5.15 or less were age 20 or
older. 64 percent of these workers are women.
How Many Workers would be Affected by an Increase in the Minimum Wage?
Using the CPS data described above, it is possible to examine the number and characteristics of
workers who would potentially receive a pay raise from a $1.00 increase in the federal minimum
wage. Table 2 presents the number of individuals who currently have an hourly wage between
$5.15 and $6.14. This table indicates that:
There are approximately 10.1 million workers within this wage range-about 14 percent of
all workers paid an hourly rate.
69 percent of the affected workers are adults age 20 or older.
About 60 percent of these workers are women.
16 percent are African American and 20 percent are Hispanic.
37 percent are the household head or a spouse who contributes to family income.
Other respected studies have looked at the question of who would potentially benefit from an
increase in the minimum wage, focusing on family and income characteristics. Some highlights
from these studies are:
Parents with children under 18 years old comprise almost 33 percent of those potentially
affected. (Bernstein, Hartmann, and Schmitt, 1999).
Over 50 percent of the proposed gains would go to households with incomes less than
$25,000 per year. (Bernstein, Hartmann, and Schmitt, 1999).
45 percent of the gains go to families with incomes below 200 percent of the poverty level,
and an additional 19 percent to families with income below 300 percent of the poverty level.
(Burkhauser, 1999).
There are other workers who would also likely benefit from a $1.00 minimum wage increase in
addition to those workers that report hourly wages between $5.15 and $6.14. As noted above, a
number of the over 900,000 workers who report a $5.00 per hour wage are also likely to be
workers currently at the minimum wage, but mis-reporting their earnings. There is also
evidence, as discussed earlier, that workers who earn wages just above the new minimum can see
their pay rise as a result of the minimum wage increase. To help gauge the size of this group in
the event of a minimum wage increase to $6.15, Table 2 also presents the number of workers
with hourly wages between $6.15 and $7.14. In 1999 there were approximately 8.4 million such
workers, many of whom could indirectly benefit from a minimum wage increase.
Appendix A presents a breakdown of the number of workers that would benefit by state. While
the most populous states would have the greatest number of workers in these wage categories
(California, for example, has almost 1.5 million workers with wages between $5.15 and $6.14)
the evidence suggests that thousands of workers in every state would potentially benefit from a
$1.00 increase in the minimum wage.
6
Table 1. Employed Wage and Salary Workers Paid Hourly Rates with Earnings At or
Below Minimum Wage, 1999
Number of workers
Percent
Percent distribution
(in thousands)
of
workers
in
Total
Total
demogra
Characteristic
Paid
Paid
phic
paid
$5.15 or
paid
$5.15 or
hourly
hourly
group
less
less
who
rates
rates
earn
$5.15 or
less
Total, 16 years and over
72,306
3,340
100.0
100.0
4.6
AGE
16 to 19 years
6,600
1,006
9.1
30.1
15.2
20 and over
65,706
2,334
90.9
69.9
3.6
SEX
Men, 16 years and over
36,073
1,214
49.9
36.3
3.4
Women, 16 years and over
36,233
2,126
50.1
63.7
5.9
RACE AND HISPANIC ORIGIN
White
58,999
2,698
81.6
80.8
4.6
African American
10,126
515
14.0
15.4
5.1
Hispanic
9,402
513
13.0
15.4
5.5
FULL- AND PART-TIME STATUS
Full-time workers
54,931
1,320
76.0
39.5
2.4
Part-time workers
17,227
2,010
23.8
60.2
11.7
FAMILY RELATIONSHIP
Husbands
17,609
242
24.4
7.2
1.4
Wives
16,996
622
23.5
18.6
3.7
Women who maintain families
5,395
288
7.5
8.6
5.3
Men who maintain families
1,815
50
2.5
1.5
2.8
Other persons
30,491
2,082
42
62
28
Note: Data exclude the incorporated self-employed. Detail for the above race and Hispanic-origin groups will not
sum to totals because data for the "other races" group are not presented and Hispanics are included in both the white
and black population groups. Also note that the distinction between full- and part-time workers is based on hours
usually worked. These data will not sum to totals because full- or part-time status on the principal job is not
identifiable for a small number of multiple jobholders.
Source: U.S. Department of Labor (Bureau of Labor Statistics), unpublished tabulations from the Current Population
Survey, 1999 annual averages.
7
Table 2. Distribution of Wage and Salary Workers Paid Hourly Rates, 1999
Percent of
workers in
Number of
Percent
workers (in
demographic
distribution
Characteristic
thousands)
group who fall
in wage
category
$5.15 -
$6.15 -
$5.15 -
$6.15 -
$5.15 -
$6.15 -
$6.14
$7.14
$6.14
$7.14
$6.14
$7.14
Total, 16 years and over
10,093
8,370
100.0
100.0
14.0
11.6
AGE
16 to 19 years
3,133
1,482
31.0
17.7
47.5
22.5
20 and over
6,960
6,888
69.0
82.3
10.6
10.5
SEX
Men, 16 years and over
4,076
3,405
40.4
40.7
11.3
9.4
Women, 16 years and over
6,018
4,965
59.6
59.3
16.6
13.7
RACE AND HISPANIC ORIGIN
White
8,027
6,668
79.5
79.7
13.6
11.3
African American
1,602
1,336
15.9
16.0
15.8
13.2
Hispanic
1,989
1,447
19.7
17.3
21.2
15.4
FULL- AND PART-TIME STATUS
Full-time workers
4,563
5,301
45.2
63.3
8.3
9.7
Part-time workers
5,512
3,048
54.6
36.4
32.0
17.7
FAMILY RELATIONSHIP
Husbands
851
990
8.4
11.8
4.8
5.6
Wives
1,821
1,962
18.0
23.4
10.7
11.5
Women who maintain families
855
807
8.5
9.6
15.8
15.0
Men who maintain families
171
167
1.7
2.0
9.4
9.2
Other persons
6,396
4,445
63
53
84
58
Note: Data exclude the incorporated self-employed. Detail for the above race and Hispanic-origin groups will not
sum to totals because data for the "other races" group are not presented and Hispanics are included in both the white
and black population groups. Also note that the distinction between full- and part-time workers is based on hours
usually worked. These data will not sum to totals because full- or part-time status on the principal job is not
identifiable for a small number of multiple jobholders.
Source: U.S. Department of Labor (Bureau of Labor Statistics), unpublished tabulations from the Current Population
Survey, 1999 annual averages.
8
5. ECONOMIC RESEARCH ON THE EFFECT OF THE MINIMUM WAGE ON
EMPLOYMENT
The impact of a moderate increase in the minimum wage on employment is a key question for
policymakers. Clearly, while an increase in the minimum wage benefits those workers who
receive it, some have raised concerns that these direct gains may be partially or fully offset if the
minimum wage increase leads to greater unemployment among lower income workers. Section
3 discussed some of the aggregate evidence from the 1996-97 experience. This section discusses
the economic theory and empirical evidence behind the effects of the minimum wage on
employment.
Recent Economic Theory on the Impact of the Minimum Wage on Employment
The traditional economic theory of supply and demand predicts that an increase in the minimum
wage above the market rate would increase the cost faced by employers, causing them to reduce
employment. Recent theoretical analyses, however, have challenged this conventional wisdom,
examining reasons why some employers may respond to a moderately higher minimum wage by
expanding employment. Specifically, higher wages can help firms attract better workers,
motivate them to work harder, and retain them for longer periods. (While firms always have the
option of increasing their pay rate, some managers leave wages unchanged because of reluctance
to increase average labor costs.) At least five papers-recently published in peer-reviewed
economics journals-rigorously study this logic. 6 These papers show that a moderate minimum
wage can have a positive effect on employment. In general, then, an increase in the minimum
wage has an ambiguous effect on employment. The only way to determine the effect in practice
is to look at the empirical evidence.
Recent Empirical Evidence on Employment Effects
In an important book, economists David Card and Alan Krueger (1995) provide a critical
analysis of previous research, and present their own extensive exploration of the wide variation
in minimum wages across states found in the late 1980s and early 1990s. Their work shows that
there were no negative employment effects even for teenagers, the group for whom any
disemployment effects should be most apparent. Similarly, their detailed analysis fails to find
disemployment effects of a minimum wage in the retail trade or in employment of fast food
restaurants. More recent studies confirm these results.
Employment in Fast Food Restaurants. To determine the impact of minimum wages on
employment, one would like to gather data from firms prior to a minimum wage increase and see
how firms adjust employment relative to other similar firms for which the minimum wage does
not increase. New work by Card and Krueger (forthcoming) comes closest to doing this. In
1992, New Jersey imposed a higher minimum wage, and yet the neighboring state of
Pennsylvania did not. And then in 1996 an increase in the federal minimum wage affected
Pennsylvania but not New Jersey. These two episodes provide an experiment that can be used to
infer the effects of a minimum wage increase on employment. Card and Krueger use the BLS's
employer-reported payroll files from 1991 through 1997 to evaluate employment growth of fast
6
See Bhaskar and To (1999), Dickens, Machin, and Manning (1999), Lang and Kahn (1998), Manning (1995), and
Rebitzer and Taylor (1995). Additional discussion of these models are found in Chapter 11 of Card and Krueger
(1995).
9
food restaurants in New Jersey and nearby counties in Pennsylvania. They conclude that the
minimum wage changes had very little (and possibly slightly positive) effect on employment.⁷
The British Experience. Dickens, Machin, and Manning (1999) studied the British experience
with minimum wages. They found " strong evidence that [minimum wages] compressed the
distribution of earnings and no evidence that they have reduced employment."
6. CONCLUSION
The evidence is convincing that moderate increases in the minimum wage have provided
meaningful additional earnings for many of America's most hard-pressed working families with
no discernible negative employment effects. Increasing the minimum wage is one of the ways
that government can help ensure that everyone continues to share in the benefits of growth.
When the minimum wage was fixed from 1981 to 1990, the wages and incomes of poorer
workers fell in real terms. Thanks to the 1996-97 minimum wage increase, today the minimum
wage is helping to ensure that a single parent with two children does not have to raise his or her
children in poverty.
The minimum wage is just one component of an overall strategy for insuring that all families
benefit from the nation's economic growth. The President's proposed expansion in the Earned
Income Tax Credit-to increase benefits for families with three or more children, reduce the
marriage penalty, and reduce the phaseout rate-would enhance the value of a higher minimum
wage, especially for families with more children and thus greater needs. At the same time, the
President is committed to continuing to make important investments in people. Since 1993, the
budget for education and training programs has nearly doubled and the President is proposing
record increases for a number of key education programs, including Head Start, in his FY 2001
budget. Together, these policies are an investment in continued strong and shared economic
growth.
7 While some critics of Card and Krueger expressed concern about their data collection, the most recent research
uses BLS employment records and finds basically the same results.
10
REFERENCES
Bernstein, Jared, Heidi Hartmann, and John Schmitt. 1999. "The Minimum Wage Increase: A
Working Woman's Issue." Economic Policy Institute Issue Brief 133, Washington, D.C.
Bernstein, Jared and John Schmitt. 1998. Making Work Pay: The Impact of the 1996-97
Minimum Wage Increase. Economic Policy Institute, Washington, D.C.
Bhaskar, V. and Ted To. 1999. "Minimum Wages for Ronald McDonald Monopsonies: A
Theory of Monopsonistic Competition." The Economic Journal 109 (April): 190-203.
Burkhauser, Richard V. and Sarah G. Blanding. 1999. "A Review of Recent Evidence on the
Effect of the Minimum Wage on the Working Poor," (paper presented at the Low Pay
Commission's International Minimum Wage Symposium, London, England).
Card, David and Alan Krueger. 1994. "Minimum Wages and Employment: A Case Study of the
Fast Food Industry in New Jersey and Pennsylvania." American Economic Review, 84: 772-793.
. 1995. Myth and Measurement. Princeton: Princeton University Press.
.
1999. "A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the
Fast-Food Industry with Representative Payroll Data." Forthcoming, American Economic
Review.
Council of Economic Advisers. 1999. "The Effects of Welfare Policy and the Economic
Expansion on Welfare Caseloads: An Update." Executive Office of the President of the United
States.
Dickens, Richard, Stephen Machin, Alan Manning. 1999. "The Effects of Minimum Wages on
Employment: Theory and Evidence from Britain." Journal of Labor Economics 17(1): 1-22.
Fortin, Nicole and Thomas Lemieux. 1997. "Institutional Changes and Rising Wage Inequality:
Is There a Linkage?" Journal of Economic Perspectives 11(2): 75-96.
Grossman, J.B. 1983. "The Impact of the Minimum Wage on Other Wages." Journal of Human
Resources 18: 359-378.
Haugen, Steven E. and Earl F. Mellor. "Estimating the Number of Minimum Wage Workers."
Monthly Labor Review January 1990.
Katz, Lawrence and Alan Krueger. 1992. "The Effects of the Minimum Wage on the Fast Food
Industry." Industrial and Labor Relations Review 46: 6-12.
Lang, Kevin and Shulamit Kahn. 1998. "The Effect of the Minimum-Wage Laws on the
Distribution of Employment: Theory and Evidence." Journal of Public Economics 69: 67-82.
Manning, A. 1995. "How Do We Know Real Wages Are Too High?" Quarterly Journal of
Economics 110(4): 1111-25.
11
Neumark, David. 1999. "The Employment Effects of Recent Minimum Wage Increases:
Evidence from a Pre-Specified Research Design." National Bureau of Economic Research
Working Paper 7171, June.
Rebitzer, James and Lowell Taylor. 1995. "The Consequences of Minimum Wage Laws: Some
New Theoretical Ideas." Journal of Public Economics 56(2): 245-55.
12
Appendix: Distribution of Wage and Salary Workers Paid Hourly Rates by State, 1999
Number (in thousands)
Percent of All Wage and Salary
Workers
$5.15 to $6.14
$6.15 to $7.14
$5.15 to $6.14
$6.15 to $7.14
Total
10,093
8,370
13.9
11.6
Alabama
202
146
18.1
13.1
Alaska
9
13
5.5
7.6
Arizona
200
157
15.2
11.9
Arkansas
130
101
20.9
16.2
California
1,463
1,023
17.4
12.1
Colorado
79
92
7.3
8.4
Connecticut
62
70
7.5
8.6
Delaware
22
21
10.8
10.0
DC
12
12
10.0
10.7
Florida
597
530
15.5
13.8
Georgia
267
248
13.1
12.3
Hawaii
47
29
15.0
9.4
Idaho
58
45
15.6
12.3
Illinois
428
354
13.2
10.8
Indiana
180
209
9.8
11.4
Iowa
103
91
11.2
9.9
Kansas
123
96
15.6
12.3
Kentucky
157
161
14.2
14.7
Louisiana
297
123
25.9
10.7
Maine
45
39
11.8
10.4
Maryland
125
137
9.5
10.5
Massachusetts
161
162
9.6
9.7
Michigan
341
312
11.3
10.3
Minnesota
115
121
8.0
8.4
Mississippi
146
74
22.7
11.5
Missouri
172
169
11.9
11.8
Montana
54
32
21.5
12.7
Nebraska
67
68
13.2
13.6
Nevada
60
60
11.2
11.3
New Hampshire
29
31
8.2
8.5
New Jersey
205
187
10.6
9.8
New Mexico
75
39
18.0
9.1
New York
566
395
14.8
10.3
North Carolina
247
223
12.4
11.2
North Dakota
34
29
18.3
15.9
Ohio
427
356
12.7
10.6
Oklahoma
170
126
19.6
14.5
Oregon
35
184
3.7
19.7
Pennsylvaina
454
338
13.8
10.3
Rhode Island
37
25
13.4
9.3
South Carolina
153
116
14.9
11.3
South Dakota
33
29
15.2
13.7
Tennessee
208
216
13.6
14.2
Texas
929
653
18.5
13.1
Utah
61
84
10.1
14.0
Vermont
21
20
12.4
11.5
Virginia
218
207
13.6
12.8
Washington
180
158
10.9
9.6
West Virgina
106
60
22.2
12.8
Wisconsin
157
177
8.9
10.0
Wyoming
25
19
17.8
13.8
Note: Workers in the $5.15 to $6.14 category would be directly affected by a $1.00 increase in the minimum wage.
Those in the $6.15 to $7.14 category could be affected by spillovers.
Source: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population
Survey, 1999.
13
Percentage of workers paid hourly rates earning
between $5.15 and $6.14 per hour, by State
(U.S. percentage = 14.0 percent)
1999 annual averages
Mountain
West
New England
WASH.
North Central
East
North Central
MAINE
MONT.
N.D.
Middle
VT.
ORE.
MINN.
Atlantic
N.H.
MASS.
IDAHO
WIS.
MICH.
S.D.
N.Y.
R.I.
WYO
CONN.
-
IOWA
NEB.
PA.
OHIO
N.J.
NEV.
ILL.
IND.
MD.
CALIF
UTAH
DEL.
COLO.
KAN.
MO.
W.VA.
I
I
KY.
VA.
D.C.
TENN.
ARIZ.
N.C.
N.M.
OKLA.
I
ARK.
S.C.
South Atlantic
Pacific
MISS.
ALA.
GA.
TEX.
LA.
20.0% or over
FLA.
15.0% 19.9%
ALASKA
East
10.0% 14.9%
HAWAII
South Central
5.0% 9.9%
West
4.9% or below
South Central
Source: Bureau of Labor Statistics
17
THE MINIMUM WAGE:
INCREASING THE REWARD FOR WORK
March 2000
A REPORT BY THE NATIONAL ECONOMIC COUNCIL
WITH THE ASSISTANCE OF THE COUNCIL OF ECONOMIC ADVISERS
AND THE OFFICE OF THE CHIEF ECONOMIST, U.S. DEPARTMENT OF LABOR
EXECUTIVE SUMMARY
Raising the Minimum Wage by $1 to $6.15 an Hour Would Potentially Benefit More
than 10 Million American Workers-Most of Whom are Adult Workers. An analysis of
labor market data shows that in 1999, 10.1 million hourly paid workers made between $5.15
and $6.14 an hour, and thus would potentially benefit from a $1 increase in the minimum
wage. About 69 percent of these workers are adults (age 20 or over), about 60 percent are
women, about 45 percent worked full-time, and about 33 percent were parents with children
under 18 years old. In 1997, the earnings of average minimum wage workers accounted for
54 percent of their family's total earnings.
Raising the Minimum Wage to $6.15 an Hour Would Restore the Real Value to What It
Was in 1982. Since it was first established in 1938, the minimum wage has been increased
19 times. Between January 1981 and March 1990, the minimum wage was fixed at $3.35 an
hour, while prices rose by nearly 50 percent. The proposal to raise the minimum wage by $1
over two years would restore the real value of the minimum wage to what it was in 1982.
Increasing the Minimum Wage Would Help Hard-Pressed Families Pay for Groceries,
Rent, and Other Necessities. Raising the minimum wage from $5.15 to $6.15 would raise
the annual earnings of a full-time worker by about $2,000 a year. A study of spending by
low-income families found that they spend on average about $300 per month on groceries
and about $400 per month on rent. Thus, for a full-time worker, the minimum wage increase
would translate into enough money to pay for nearly 7 months of groceries or 5 months of
rent.
Recent Increases in the Minimum Wage Had No Discernable Negative Effect on
Employment. Since the minimum wage increase in 1996, the economy has created more
than 10 million jobs and the unemployment rate has fallen from 5.2 percent in September
1996 to 4.1 percent in February 2000, near its lowest level in thirty years. Labor market
trends for workers most affected by the minimum wage increase-including younger
workers, workers with lower educational levels, and minorities-also show no negative
impact of the minimum wage on employment. Numerous careful economic studies,
including ones by David Card and Alan Krueger, have shown that increasing the minimum
wage has no negative effect on employment. Recent research has even suggested that higher
wages can increase employment, because they increase employers' ability to attract, retain,
and motivate workers. And they benefit workers by increasing the reward to work.
The Minimum Wage Plays a Key Role in Ensuring That All Workers Share in a
Growing Economy. In the last seven years, incomes have grown nearly as strongly at the
bottom as at the top of the income distribution, ending a decades long increase in inequality.
In contrast, in the previous two decades inequality widened, as poorer families saw their
incomes decline in real terms. Research has shown that the decline in the real value of the
minimum wage from 1979 to 1988 was responsible for approximately 24 percent of the
increase in wage inequality experienced by men and about 32 percent of the increase in wage
inequality for women.
The Minimum Wage Has Helped Reduce the Welfare Caseload. By increasing the
reward to work, a higher minimum wage attracts new workers into the workforce. An
analysis by the Council of Economic Advisers showed that higher federal and state minimum
wages were responsible for 10 to 16 percent of the decline in welfare caseloads between
1996 and 1998.
The Minimum Wage and the Earned Income Tax Credit Are Complementary. A
working parent with two children earning the minimum wage in 1993 made $10,563 with the
EITC (in 1998 inflation-adjusted dollars)-well below the poverty line. With the 1993
increase in the EITC and the 90 cent increase in the minimum wage in 1996 and 1997, a
comparably situated family in 1998 was above the poverty line-making $13,268-a 26
percent inflation-adjusted increase in its standard of living.
ii
1. INTRODUCTION
The American economy is in the midst of the longest economic expansion in history. Since
January 1993, the economy has created nearly 21 million new jobs. The unemployment rate in
February 2000 was 4.1 percent, near its lowest level in three decades. The overall performance
of the economy has only grown stronger over time. In the last four years, labor productivity has
grown at a 2.9 percent annual rate and GDP has grown at a 4.4 percent annual rate. At the same
time, the underlying core inflation rate in 1999 was 1.9 percent-the lowest rate since 1965.
In contrast to the previous twenty years, the strong economy of the last seven years has
contributed to shared growth across all income groups and substantial poverty reduction. As
indicated in Chart 1, incomes have grown nearly as strongly at the bottom as at the top of the
Chart 1: Growth in Mean Real Family Income by Quintile
income distribution, ending a decades long
3
increase in inequality. The poverty rate has
1993-98
fallen to 12.7 percent, the lowest level since
2
1979. The strong labor market has been
1973-93
Average annual percent change
beneficial to people across the economic and
demographic spectrum. In 1999, the
1
unemployment rates for African Americans
and Hispanics fell to the lowest levels ever
0
recorded.
Strong growth is necessary but not sufficient
-1
Bottom
2nd quintile
3rd quintile
4th quintile
Top quintile
to produce sustained income gains and
quintile
poverty reduction. Also important are
Source Department of Commerce/Burecuof the Census)
policies that insure that all workers are
rewarded for their work. The Clinton Administration has consistently sought to make work pay
through a range of policies, including expanding the Earned Income Tax Credit in 1993,
reforming welfare in order to increase work incentives, and increasing investments in child care
for working parents. And an additional key element was the 1996-97 increase in the minimum
wage. These policies interact in a beneficial way for low-income families. For instance, a
working parent with two children earning the minimum wage in 1993 made $10,563 with the
EITC (in 1998 inflation-adjusted dollars), well below the poverty threshold. With the 1993
increase in the EITC and the 90 cent increase in the minimum wage in 1996 and 1997, a
comparably situated family in 1998 was above the poverty level-making $13,268-a 26
percent inflation-adjusted increase in their standard of living.
This report examines the role that the minimum wage plays in increasing the reward to work and
boosting incomes for workers at the bottom of the earnings distribution. The report also
examines the recent evidence about the effect of the minimum wage on employment.
2. BACKGROUND ON THE MINIMUM WAGE
A federal minimum wage of 25 cents was first established as a part of the Fair Labor Standards
Act of 1938 (FLSA). Since its inception, the federal minimum wage has been increased 19
times, and the FLSA has been amended numerous times to expand the workers covered by the
minimum wage provision. In recent years, about two thirds of wage and salary workers have
been covered by the FLSA minimum wage. (Workers who are exempt most often are in
executive, administrative, and professional occupations.)
The federal minimum wage reached its highest value in real terms in 1968, at $7.67 in 1999
dollars (see Chart 2). With five increases during the 1970s, the minimum wage held its value at
approximately $6.60. The last increase of the 1970s left the inflation-adjusted value at $6.66.
From January 1981 through March 1990, the minimum wage was unchanged, while at the same
time prices rose by nearly 50 percent. This eroded the real value of the minimum wage at the
end of the 1980s to $4.50. The dollar level of the minimum wage was increased from $3.35 to
$3.80 in 1990 and to $4.25 in 1991. In real terms the value of the minimum wage was still well
below the 1968 peak.
Even with the modest inflation of the 1990s, the minimum wage lost value, falling to $4.65 in
1995. By 1996, the minimum wage adjusted for inflation was approaching a 40-year low.
Inflation had largely wiped out the last increase in the minimum wage in 1990. In August 1996,
Congress passed and President Clinton signed into law a two-step increase, lifting the minimum
wage from $4.25 to $5.15. The first step of that increase went into effect October 1, 1996 and the
second step on September 1, 1997. More recently, President Clinton proposed to increase the
minimum wage by $1 over two years, raising it to $6.15. If the full increase were implemented
in 2001, this would restore the real value of the minimum wage to its 1982 level, about 75
percent of the 1968 peak value.
Chart 2: Real Level of the Minimum Wage
8.00
7.50
7.00
6.50
1999 Dollars
6.00
5.50
5.00
4.50
4.00
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
Source Department of Lobor (B urequof Labor Statistics).
2
3. THE 1996-97 MINIMUM WAGE INCREASE
The $0.90 increase in the minimum wage in 1996 and 1997 is estimated to have benefited almost
10 million American workers. 1 This section examines the impact of this increase on
employment and the distribution of wages.
Effect on Employment
Since the 1996-97 increase in the minimum wage, the American economy-and labor markets in
particular-have continued to perform very strongly. Between September 1996 and February
2000, 10.2 million jobs were created-an average of 248,000 per month, even stronger job
growth than in the previous 2 years. In retail trade, which has a large concentration of minimum
wage workers, there were 1.4 million new jobs. Over this same period the overall
unemployment rate fell from 5.2 percent to 4.1 percent.
In addition, welfare rolls have declined 44 percent since welfare reform was enacted in August
1996. A report by the Council of Economic Advisers (1999) suggests that 10 to 16 percent of
the welfare caseload decline from 1996 to 1998 was attributable to the increases in federal and
state minimum wages. Other important factors were changes in welfare policy and the decline in
unemployment.
The strong labor market of the last four
Chart 3: Civilian Unemployment Rates by Education
years, however, is not definitive proof that
10
the minimum wage has no adverse effects on
employment. Numerous other factors affect
8
Did not complete high school
the job market, and workers paid at or near
Minimum age increase
the minimum wage are a relatively small
(October 1996)
6
fraction of the overall workforce. A better
Percent
High school
graduate, no college
test of the impact of minimum wage
4
increases is the experience of workers most
likely to be affected by the increases. An
2
Minimum age increase
(September 1997)
examination of data for these workers also
shows no discernable negative effect of the
0
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
last minimum wage increase. For example,
Source Department of Lobor (B urecuof Lobor Statistics).
adults (age 25 and above) with lower levels
Chart 4: Employment to Population Ratios by Education
of education generally have relatively low
70
wages. As Chart 3 indicates, though,
High school
65
graduate, no college
quarterly unemployment rates have generally
60
declined for both high school graduates with
Minimum age increase
55
no college and those with less than a high
(October 1996)
school education. Chart 4 shows, similarly,
Percent
Minimum age increase
50
(September 1997)
that over the past five years the employment
45
to population ratio generally held steady or
Did not complete high school
40
increased for both groups of adults. No
35
visible disruptions to these trends are
30
apparent following either the 1996 or 1997
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
minimum wage increases. Comparable
Source Department of Lobor Bureauof Lobor Statistics)
1
See Bernstein and Schmitt (1998).
3
observations pertain for teenage workers in general, and for African American teens specifically
(Charts 5 and 6). 2
These data provide evidence that the minimum wage increase did not have a major negative
effect on employment. Still, as suggestive as this evidence is, it does not provide rigorous
statistical tests that control for the myriad of factors that affect employment. Section 5 reviews
the evidence from recent economic studies.
Chart 5: Civilian Unemployment Rates, Ages 16-19
Chart 6: Employment to Population Ratios, Ages 16-19
45
50
40
All races
45
35
30
African Americans
40
Minimum age increase
Minimumv age increase
Minimum age increase
(September 1997)
Percent
25
(October 1996)
20
Percent
35
(October 1996)
All races
African Americans
15
30
10
Minimum age increase
25
5
(September 1997)
0
20
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
Source Department of Labor (B recuof Lobor Statistics)
Source Department of Lobor request Labor Statistics).
Effect on Wages for Low-income Workers
Recent increases in the minimum wage in the U.S. have improved the distribution of wages at
the low end of the distribution. Fortin and Lemieux (1997) demonstrate the importance of the
minimum wage in boosting wages at the low end, and reducing wage inequality. They show that
the decline in the real value of the minimum wage from 1979 to 1988 was responsible for
approximately 24 percent of the increase in wage inequality experienced by men and about 32
percent of the increase in wage inequality for women. Card and Krueger (1995) conclude that
the 1990-91 minimum wage increase reversed about 30 percent of the increase in wage
inequality that occurred during the previous decade.
The effect of the recent minimum wage increase-in October 1996 and September 1997-on the
wage distribution is clearly evident in wage data. Statistics tabulated from the Current
Population Survey (CPS), show that in the first two quarters of 1996, when the federal minimum
wage was $4.25, about 10 percent of all hourly wage workers earned less than $5.00. 3 The
minimum wage increase (to $5.15) clearly increased wages in the low end of the distribution; by
the first two quarters of 1998, the fraction of workers earning less than $5.00 declined to 2
percent.
2 One careful statistical analysis (Neumark, 1999) shows that the 1996-97 minimum wage increases had no effect on
the general employment of 16-19 year olds.
3 The analysis presented in this paper excludes salaried and other non-hourly workers. Research has shown,
however, that a relatively smaller number and share of salaried workers and others not paid by the hour have
earnings that, when translated into hourly rates, are at or below the minimum wage. BLS does not routinely
estimate hourly earnings for nonhourly workers because of data concerns that arise in producing these estimates.
See Haughen and Mellor (1990) for further information.
4
Chart 7 illustrates the effect of the 1996-97 minimum wage increases on the low end of the wage
distribution ($3.00 to $7.99) for just one demographic group of interest, women who maintain
families and have at least one child present in
Chart 7: Wage Distribution, $3.00 to $7.99,
the household. 4 For 1996, the distribution of
Women who Maintain Families with Children
12
1998
wages shows that a relatively small share of
1996
workers with hourly wages earn between
10
$3.00 and $3.99. 5 In contrast, a substantial
8
fraction earned between $4.00 and $4.49.
Percent
(The chart shows the distribution by 50-cent
6
increments.) This jump, of course, reflects the
4
clustering of workers whose wages were at or
near the minimum wage. The comparable
2
distribution for 1998 indicates a shift that was
0
clearly due to the change in minimum wage
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
policy. In the first two quarters of 1996,
Source Council of Economic Advisers tobulation of Current Population data
about 9 percent of these women earned less
than $5.00. By the first two quarters of 1998, this fraction declined to 2 percent.
At the same time, an increasing share of workers earned wages above $6 and $7, suggesting that
the increase in the minimum wage had spillover benefits for workers above the minimum wage.
Such spillover effects have been documented more formally in research by Grossman (1983),
Katz and Krueger (1992), and Card and Krueger (1994).
4. RAISING THE MINIMUM WAGE TO $6.15: WHO IS DIRECTLY AFFECTED?
Raising the minimum wage from $5.15 to $6.15 would raise the annual earnings of a full-time
worker by about $2,000 a year. A study of spending by low-income families found that they
spend on average about $300 per month on groceries and about $400 per month on rent. Thus,
for a full-time worker, the minimum wage increase would translate into enough money to pay for
nearly 7 months of groceries or 5 months of rent. This section provides a detailed examination
of the workers that would benefit from a further increase in the minimum wage.
Characteristics of Minimum Wage Workers in 1999
Evidence about workers who currently earn the minimum wage is available from unpublished
tabulations provided by the Bureau of Labor Statistics (BLS) based on data from the CPS. In
1999, 72.3 million workers were paid at hourly rates, representing about 61 percent of wage and
salary workers. It is estimated that 3.3 million workers-4.6 percent of all workers who are paid
an hourly rate-earn a wage at or below the current $5.15 Federal minimum. Of these 3.3
million workers, about 1.1 million reported a wage at exactly $5.15, while the remainder, 2.2
4 A family maintained by a woman is one in which the householder (person in whose name the housing unit is rented
or owned) is female, and no spouse is present. Here we examine such households when a child under 18 is present.
5 The presence of workers with reported wages below the minimum wage does not necessarily indicate violations of
the Fair Labor Standards Act. There are several reasons why the reported wage for a worker may be below the
Federal minimum. First, certain workers are exempt from the minimum wage provisions of the law, including
workers for whom tips might serve to supplement the hourly wages received. Second, there may be a misreporting
or rounding in the survey responses. When the minimum wage is $5.15, for example, a large number of workers
report a wage of exactly $5.00.
5
million, earned a wage less than $5.15. A study by Bernstein and Schmitt (1998) indicated that
in 1997 the earnings of average minimum wage workers accounted for 54 percent of their
family's total earnings.
Selected demographic and economic characteristics for these workers are presented in Table 1.
The statistics indicate that about 70 percent of workers earning $5.15 or less were age 20 or
older. 64 percent of these workers are women.
How Many Workers would be Affected by an Increase in the Minimum Wage?
Using the CPS data described above, it is possible to examine the number and characteristics of
workers who would potentially receive a pay raise from a $1.00 increase in the federal minimum
wage. Table 2 presents the number of individuals who currently have an hourly wage between
$5.15 and $6.14. This table indicates that:
There are approximately 10.1 million workers within this wage range-about 14 percent of
all workers paid an hourly rate.
69 percent of the affected workers are adults age 20 or older.
About 60 percent of these workers are women.
16 percent are African American and 20 percent are Hispanic.
37 percent are the household head or a spouse who contributes to family income.
Other respected studies have looked at the question of who would potentially benefit from an
increase in the minimum wage, focusing on family and income characteristics. Some highlights
from these studies are:
Parents with children under 18 years old comprise almost 33 percent of those potentially
affected. (Bernstein, Hartmann, and Schmitt, 1999).
Over 50 percent of the proposed gains would go to households with incomes less than
$25,000 per year. (Bernstein, Hartmann, and Schmitt, 1999).
45 percent of the gains go to families with incomes below 200 percent of the poverty level,
and an additional 19 percent to families with income below 300 percent of the poverty level.
(Burkhauser, 1999).
There are other workers who would also likely benefit from a $1.00 minimum wage increase in
addition to those workers that report hourly wages between $5.15 and $6.14. As noted above, a
number of the over 900,000 workers who report a $5.00 per hour wage are also likely to be
workers currently at the minimum wage, but mis-reporting their earnings. There is also
evidence, as discussed earlier, that workers who earn wages just above the new minimum can see
their pay rise as a result of the minimum wage increase. To help gauge the size of this group in
the event of a minimum wage increase to $6.15, Table 2 also presents the number of workers
with hourly wages between $6.15 and $7.14. In 1999 there were approximately 8.4 million such
workers, many of whom could indirectly benefit from a minimum wage increase.
Appendix A presents a breakdown of the number of workers that would benefit by state. While
the most populous states would have the greatest number of workers in these wage categories
(California, for example, has almost 1.5 million workers with wages between $5.15 and $6.14)
the evidence suggests that thousands of workers in every state would potentially benefit from a
$1.00 increase in the minimum wage.
6
Table 1. Employed Wage and Salary Workers Paid Hourly Rates with Earnings At or
Below Minimum Wage, 1999
Number of workers
Percent
Percent distribution
(in thousands)
of
workers
in
Total
demogra
Total
Characteristic
Paid
Paid
phic
paid
$5.15 or
paid
$5.15 or
hourly
less
hourly
group
less
who
rates
rates
earn
$5.15 or
less
Total, 16 years and over
72,306
3,340
100.0
100.0
4.6
AGE
16 to 19 years
6,600
1,006
9.1
30.1
15.2
20 and over
65,706
2,334
90.9
69.9
3.6
SEX
Men, 16 years and over
36,073
1,214
49.9
36.3
3.4
Women, 16 years and over
36,233
2,126
50.1
63.7
5.9
RACE AND HISPANIC ORIGIN
White
58,999
2,698
81.6
80.8
4.6
African American
10,126
515
14.0
15.4
5.1
Hispanic
9,402
513
13.0
15.4
5.5
FULL- AND PART-TIME STATUS
Full-time workers
54,931
1,320
76.0
39.5
2.4
Part-time workers
17,227
2,010
23.8
60.2
11.7
FAMILY RELATIONSHIP
Husbands
17,609
242
24.4
7.2
1.4
Wives
16,996
622
23.5
18.6
3.7
Women who maintain families
5,395
288
7.5
8.6
5.3
Men who maintain families
1,815
50
2.5
1.5
2.8
Other persons
30,491
2,082
42
62
28
Note: Data exclude the incorporated self-employed. Detail for the above race and Hispanic-origin groups will not
sum to totals because data for the "other races" group are not presented and Hispanics are included in both the white
and black population groups. Also note that the distinction between full- and part-time workers is based on hours
usually worked. These data will not sum to totals because full- or part-time status on the principal job is not
identifiable for a small number of multiple jobholders.
Source: U.S. Department of Labor (Bureau of Labor Statistics), unpublished tabulations from the Current Population
Survey, 1999 annual averages.
7
Table 2. Distribution of Wage and Salary Workers Paid Hourly Rates, 1999
Percent of
workers in
Number of
Percent
demographic
workers (in
distribution
Characteristic
thousands)
group who fall
in wage
category
$5.15 -
$6.15 -
$5.15 -
$6.15 -
$5.15 -
$6.15 -
$6.14
$7.14
$6.14
$7.14
$6.14
$7.14
Total, 16 years and over
10,093
8,370
100.0
100.0
14.0
11.6
AGE
16 to 19 years
3,133
1,482
31.0
17.7
47.5
22.5
20 and over
6,960
6,888
69.0
82.3
10.6
10.5
SEX
Men, 16 years and over
4,076
3,405
40.4
40.7
11.3
9.4
Women, 16 years and over
6,018
4,965
59.6
59.3
16.6
13.7
RACE AND HISPANIC ORIGIN
White
8,027
6,668
79.5
79.7
13.6
11.3
African American
1,602
1,336
15.9
16.0
15.8
13.2
Hispanic
1,989
1,447
19.7
17.3
21.2
15.4
FULL- AND PART-TIME STATUS
Full-time workers
4,563
5,301
45.2
63.3
8.3
9.7
Part-time workers
5,512
3,048
54.6
36.4
32.0
17.7
FAMILY RELATIONSHIP
Husbands
851
990
8.4
11.8
4.8
5.6
Wives
1,821
1,962
18.0
23.4
10.7
11.5
Women who maintain families
855
807
8.5
9.6
15.8
15.0
Men who maintain families
171
167
1.7
2.0
9.4
9.2
Other persons
6,396
4,445
63
53
84
58
Note: Data exclude the incorporated self-employed. Detail for the above race and Hispanic-origin groups will not
sum to totals because data for the "other races" group are not presented and Hispanics are included in both the white
and black population groups. Also note that the distinction between full- and part-time workers is based on hours
usually worked. These data will not sum to totals because full- or part-time status on the principal job is not
identifiable for a small number of multiple jobholders.
Source: U.S. Department of Labor (Bureau of Labor Statistics), unpublished tabulations from the Current Population
Survey, 1999 annual averages.
8
5. ECONOMIC RESEARCH ON THE EFFECT OF THE MINIMUM WAGE ON
EMPLOYMENT
The impact of a moderate increase in the minimum wage on employment is a key question for
policymakers. Clearly, while an increase in the minimum wage benefits those workers who
receive it, some have raised concerns that these direct gains may be partially or fully offset if the
minimum wage increase leads to greater unemployment among lower income workers. Section
3 discussed some of the aggregate evidence from the 1996-97 experience. This section discusses
the economic theory and empirical evidence behind the effects of the minimum wage on
employment.
Recent Economic Theory on the Impact of the Minimum Wage on Employment
The traditional economic theory of supply and demand predicts that an increase in the minimum
wage above the market rate would increase the cost faced by employers, causing them to reduce
employment. Recent theoretical analyses, however, have challenged this conventional wisdom,
examining reasons why some employers may respond to a moderately higher minimum wage by
expanding employment. Specifically, higher wages can help firms attract better workers,
motivate them to work harder, and retain them for longer periods. (While firms always have the
option of increasing their pay rate, some managers leave wages unchanged because of reluctance
to increase average labor costs.) At least five papers-recently published in peer-reviewed
economics journals-rigorously study this logic. 6 These papers show that a moderate minimum
wage can have a positive effect on employment. In general, then, an increase in the minimum
wage has an ambiguous effect on employment. The only way to determine the effect in practice
is to look at the empirical evidence.
Recent Empirical Evidence on Employment Effects
In an important book, economists David Card and Alan Krueger (1995) provide a critical
analysis of previous research, and present their own extensive exploration of the wide variation
in minimum wages across states found in the late 1980s and early 1990s. Their work shows that
there were no negative employment effects even for teenagers, the group for whom any
disemployment effects should be most apparent. Similarly, their detailed analysis fails to find
disemployment effects of a minimum wage in the retail trade or in employment of fast food
restaurants. More recent studies confirm these results.
Employment in Fast Food Restaurants. To determine the impact of minimum wages on
employment, one would like to gather data from firms prior to a minimum wage increase and see
how firms adjust employment relative to other similar firms for which the minimum wage does
not increase. New work by Card and Krueger (forthcoming) comes closest to doing this. In
1992, New Jersey imposed a higher minimum wage, and yet the neighboring state of
Pennsylvania did not. And then in 1996 an increase in the federal minimum wage affected
Pennsylvania but not New Jersey. These two episodes provide an experiment that can be used to
infer the effects of a minimum wage increase on employment. Card and Krueger use the BLS's
employer-reported payroll files from 1991 through 1997 to evaluate employment growth of fast
6
See Bhaskar and To (1999), Dickens, Machin, and Manning (1999), Lang and Kahn (1998), Manning (1995), and
Rebitzer and Taylor (1995). Additional discussion of these models are found in Chapter 11 of Card and Krueger
(1995).
9
food restaurants in New Jersey and nearby counties in Pennsylvania. They conclude that the
minimum wage changes had very little (and possibly slightly positive) effect on employment.⁷
The British Experience. Dickens, Machin, and Manning (1999) studied the British experience
with minimum wages. They found " strong evidence that [minimum wages] compressed the
distribution of earnings and no evidence that they have reduced employment."
6. CONCLUSION
The evidence is convincing that moderate increases in the minimum wage have provided
meaningful additional earnings for many of America's most hard-pressed working families with
no discernible negative employment effects. Increasing the minimum wage is one of the ways
that government can help ensure that everyone continues to share in the benefits of growth.
When the minimum wage was fixed from 1981 to 1990, the wages and incomes of poorer
workers fell in real terms. Thanks to the 1996-97 minimum wage increase, today the minimum
wage is helping to ensure that a single parent with two children does not have to raise his or her
children in poverty.
The minimum wage is just one component of an overall strategy for insuring that all families
benefit from the nation's economic growth. The President's proposed expansion in the Earned
Income Tax Credit-to increase benefits for families with three or more children, reduce the
marriage penalty, and reduce the phaseout rate-would enhance the value of a higher minimum
wage, especially for families with more children and thus greater needs. At the same time, the
President is committed to continuing to make important investments in people. Since 1993, the
budget for education and training programs has nearly doubled and the President is proposing
record increases for a number of key education programs, including Head Start, in his FY 2001
budget. Together, these policies are an investment in continued strong and shared economic
growth.
7 While some critics of Card and Krueger expressed concern about their data collection, the most recent research
uses BLS employment records and finds basically the same results.
10
REFERENCES
Bernstein, Jared, Heidi Hartmann, and John Schmitt. 1999. "The Minimum Wage Increase: A
Working Woman's Issue." Economic Policy Institute Issue Brief 133, Washington, D.C.
Bernstein, Jared and John Schmitt. 1998. Making Work Pay: The Impact of the 1996-97
Minimum Wage Increase. Economic Policy Institute, Washington, D.C.
Bhaskar, V. and Ted To. 1999. "Minimum Wages for Ronald McDonald Monopsonies: A
Theory of Monopsonistic Competition." The Economic Journal 109 (April): 190-203.
Burkhauser, Richard V. and Sarah G. Blanding. 1999. "A Review of Recent Evidence on the
Effect of the Minimum Wage on the Working Poor," (paper presented at the Low Pay
Commission's International Minimum Wage Symposium, London, England).
Card, David and Alan Krueger. 1994. "Minimum Wages and Employment: A Case Study of the
Fast Food Industry in New Jersey and Pennsylvania." American Economic Review, 84: 772-793.
. 1995. Myth and Measurement. Princeton: Princeton University Press.
-
1999. "A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the
Fast-Food Industry with Representative Payroll Data." Forthcoming, American Economic
Review.
Council of Economic Advisers. 1999. "The Effects of Welfare Policy and the Economic
Expansion on Welfare Caseloads: An Update." Executive Office of the President of the United
States.
Dickens, Richard, Stephen Machin, Alan Manning. 1999. "The Effects of Minimum Wages on
Employment: Theory and Evidence from Britain." Journal of Labor Economics 17(1): 1-22.
Fortin, Nicole and Thomas Lemieux. 1997. "Institutional Changes and Rising Wage Inequality:
Is There a Linkage?" Journal of Economic Perspectives 11(2): 75-96.
Grossman, J.B. 1983. "The Impact of the Minimum Wage on Other Wages." Journal of Human
Resources 18: 359-378.
Haugen, Steven E. and Earl F. Mellor. "Estimating the Number of Minimum Wage Workers."
Monthly Labor Review January 1990.
Katz, Lawrence and Alan Krueger. 1992. "The Effects of the Minimum Wage on the Fast Food
Industry." Industrial and Labor Relations Review 46: 6-12.
Lang, Kevin and Shulamit Kahn. 1998. "The Effect of the Minimum-Wage Laws on the
Distribution of Employment: Theory and Evidence." Journal of Public Economics 69: 67-82.
Manning, A. 1995. "How Do We Know Real Wages Are Too High?" Quarterly Journal of
Economics 110(4): 1111-25.
11
Neumark, David. 1999. "The Employment Effects of Recent Minimum Wage Increases:
Evidence from a Pre-Specified Research Design." National Bureau of Economic Research
Working Paper 7171, June.
Rebitzer, James and Lowell Taylor. 1995. "The Consequences of Minimum Wage Laws: Some
New Theoretical Ideas." Journal of Public Economics 56(2): 245-55.
12
Appendix: Distribution of Wage and Salary Workers Paid Hourly Rates by State, 1999
Number (in thousands)
Percent of All Wage and Salary
Workers
$5.15 to $6.14
$6.15 to $7.14
$5.15 to $6.14
$6.15 to $7.14
Total
10,093
8,370
13.9
11.6
Alabama
202
146
18.1
13.1
Alaska
9
13
5.5
7.6
Arizona
200
157
15.2
11.9
Arkansas
130
101
20.9
16.2
California
1,463
1,023
17.4
12.1
Colorado
79
92
7.3
8.4
Connecticut
62
70
7.5
8.6
Delaware
22
21
10.8
10.0
DC
12
12
10.0
10.7
Florida
597
530
15.5
13.8
Georgia
267
248
13.1
12.3
Hawaii
47
29
15.0
9.4
Idaho
58
45
15.6
12.3
Illinois
428
354
13.2
10.8
Indiana
180
209
9.8
11.4
Iowa
103
91
11.2
9.9
Kansas
123
96
15.6
12.3
Kentucky
157
161
14.2
14.7
Louisiana
297
123
25.9
10.7
Maine
45
39
11.8
10.4
Maryland
125
137
9.5
10.5
Massachusetts
161
162
9.6
9.7
Michigan
341
312
11.3
10.3
Minnesota
115
121
8.0
8.4
Mississippi
146
74
22.7
11.5
Missouri
172
169
11.9
11.8
Montana
54
32
21.5
12.7
Nebraska
67
68
13.2
13.6
Nevada
60
60
11.2
11.3
New Hampshire
29
31
8.2
8.5
New Jersey
205
187
10.6
9.8
New Mexico
75
39
18.0
9.1
New York
566
395
14.8
10.3
North Carolina
247
223
12.4
11.2
North Dakota
34
29
18.3
15.9
Ohio
427
356
12.7
10.6
Oklahoma
170
126
19.6
14.5
Oregon
35
184
3.7
19.7
Pennsylvaina
454
338
13.8
10.3
Rhode Island
37
25
13.4
9.3
South Carolina
153
116
14.9
11.3
South Dakota
33
29
15.2
13.7
Tennessee
208
216
13.6
14.2
Texas
929
653
18.5
13.1
Utah
61
84
10.1
14.0
Vermont
21
20
12.4
11.5
Virginia
218
207
13.6
12.8
Washington
180
158
10.9
9.6
West Virgina
106
60
22.2
12.8
Wisconsin
157
177
8.9
10.0
Wyoming
25
19
17.8
13.8
Note: Workers in the $5.15 to $6.14 category would be directly affected by a $1.00 increase in the minimum wage.
Those in the $6.15 to $7.14 category could be affected by spillovers.
Source: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population
Survey, 1999.
13
Percentage of workers paid hourly rates earning
between $5.15 and $6.14 per hour, by State
(U.S. percentage = 14.0 percent)
1999 annual averages
Mountain
West
New England
North Central
WASH.
East
North Central
MAINE
MONT.
N.D.
Middle
I
VT
ORE.
MINN.
Atlantic
N.H.
491
MASS.
IDAHO
WIS.
MICH.
S.D.
N.Y.
R.I.
WYO.
CONN.
-
IOWA
PA.
NEB.
N.J.
OHIO
NEV.
ILL.
IND.
MD.
CALIF
UTAH
DEL.
COLO.
KAN.
MO.
W.VA.
I
I
KY.
VA.
D.C.
TENN.
N.C.
ARIZ.
N.M.
OKLA.
ARK.
S.C.
South Atlantic
MISS.
ALA.
Pacific
GA.
TEX.
LA.
20.0% or over
FLA.
15.0% 19.9%
ALASKA
East
10.0% 14.9%
HAWAII
South Central
5.0% 9.9%
West
4.9% or below
South Central
Source: Bureau of Labor Statistics