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1
01/17/95
18:20
COMMITTEE ON EDUCATION & LOBOR
002
EMPLOYMENT
POLICIES
JANUARY 18, 1995
INSTITUTE
FOUNDATION
STATEMENT OF
CARLOS BONILLA
CHIEF ECONOMIST
PRESENTED BEFORE
COMMITTEE ON ECONOMIC AND
EDUCATIONAL OPPORTUNITIES
HEARINGS ON WELFARE REFORM
U.S. HOUSE OF REPRESENTATIVES
Sulte 1110, 607 14th Street. N.W. . Washington. D.C. 20005- (202) 347-5178. Fax: (202) 347-5250
01/17/95
18:21
COMMITTEE ON EDUCATION is LABOR
003
Abstract
Moving welfare recipients Into the workplace while assuring Income adequacy remains the main
stumbling block to welfare reform. Any policy that aims to reform welfare in this direction will
have to break sharply with the conventional wisdom of the past in order to be successful.
Significantly, new research findings from the Employment Policies Institute Foundation show
that:
Raising the minimum wage to increase the earnings of those leaving welfare has
the effect of making welfare leavers less employable. States that raised their
minimum wages in the late 1980s saw 40 percent longer spells of welfare receipt
than did states which left their minimum wages unallered. At the same time,
these higher wage states saw work-related welfare terminations fall by 20 percent.
As many have argued, "making work more attractive" through higher wages does
induce individuals to join the workforce and seck out these positions. These
individuals, however, had higher skill levels than did welfare recipients and
crowded them out of the workforce. The same phenomena has been confirmed
to take place among low-skill adults at the minimum wage, raising the spccter of
increasing dependency through a welfare reform approach predicated on forcing
higher entry-level wages.
Too much cmphasis has been placed on the initial wages in entry level employ-
ment and too little on the earnings growth that has been documented to take place
among the overwhelming majority of entry level workers. Within a short number
of years after starting in entry level, workers who started in service sector
occupations have average earnings that are comparable to those of workers who
started the work lives in other sectors, even manufacturing.
01/17/95
18:21
COMMITTEE ON EDUCATION 3 CABOR
304
The core of the welfare reform debate is focused on two questions: How do we move welfare
mothers off of public assistance and into the workforce; and. once working, how do we assure
that these women and the families dependent on them have sufficient income.
The magnitude of these problems is important to understand. From the Survey of Income
and Program Participation spanning 1985 to 1990, we see that almost 10 percent of the women
who reported that they were the mother or guardian of children under the age of 18 received
benefits from the Aid to Families with Dependent Children Program for at least one survey
month. Of the group who received welfare, less than half ended their period of benefits receipt
because of employment. The rest of the welfare exits were primarily demographic in nature,
reflecting loss of eligibility due to marital status 01 changes in family composition and age.
Most of the jobs-70 percent-taken by women Icaving welfare were either service or
Technical, Sales, and Administrative Support (TSAS) jobs. About a quarter of the TSAS jobs
were as waitress in the food service industry, a fifth were cashiers and sales positions, and
another fifth were nurses aides, orderlies and attendants. About 20 percent of welfare-to-work
transitions involved employment as packagers, sewing machine operators, and assemblers.
The immediate observation Is that these positions are among the less well paid positions
in the American economy. Raising the earnings potential of people exiting welfare, to both
make work a more attractive option and to assure a sct standard of living, is where the debate
is joincd over how to implement work based welfare reform.
Raising Earnings
That many of the jobs taken by those leaving welfare pay at or near the minimum wage
has led a number of observers to recommend an increase in the minimum wage as a component
of welfare reform. Reports describe the Administration as debating an increase of either 75c
01/17/95
18:22
COMMITTEE ON EDUCATION & LABOR
005
or $1.00 an hour. While such an increase would indeed raise the pay in these jobs-for full time
work, a $1.00 an hour increase translates as $2,000 a year-it does not tell us what happens to
the ability of welfare leavers to get these jobs.
The Employment Policies Institute Foundation has today released a research report on
exactly this topic. This research, Jobs taken by Mothers Moving from Welfare to Work and the
Effects of Minimum Wages on this Transition', was carried out by Peter Brandon at the Institute
for Research on Poverty, at the University of Wisconsin. Dr. Brandon looked at the patterns
of welfare exits among mothers who identified themselves as having received benefits under the
Aid to Families With Dependent Children (AFDC) program. The research focused on the spells
of welfare as well as the exits from the AFDC program.
To identify the effects of higher minimum wages on work-related wclfare terminations,
Dr. Brandon compared the work patterns of women receiving welfare in states that raised their
minimum wages in the late 1980s compared to those women whose state of residence imposed
no increase. (This methodology is consistent with much of the recent work on minimum wages,
some of which has received considerable attention.) Increases in the minimum wage occurred
in about 20 percent of the welfare spells identified.
Across the three waves of the data that were used in this analysis, roughly 20 percent
coincided with an increase in the mini-
Raising the minimum wage increased
mum wage. The average spell of AFDC
by over 40 percent the length of time
women spens receiving welfare
receipts for the entire sample was 14.5
months. But, spells of welfare receipt
that overlapped a minimum wage increase were much longer. Rather than the 14.5 month
2
01/17/95
16:22
COMMITTEE ON EDUCATION & CABOR
306
average, these spells lasted more than 20 months. Raising the minimum wage increased by over
40 percent the length of time women spent receiving welfare.
To understand the dynamics of this longer period of welfare receipt il is helpful w look
at the work patterns. More than 50 per-
More than 50 percent of mothers
cent of mothers receiving AFDC benefits
receiving AFDC benefits in a state
which raised its minimum stayed out of
in a state which raised its minimum
the labor market over the entire survey
stayed out of the labor market over the
period. In contrast, only 40 percent of
mothers in those states which did not
entire survey period. In contrast, only 40
raise the minimum wage stayed out of
the labor market
percent of mothers in those states which
did not raise the minimum wage stayed
out of the labor market. This 20 percent difference in labor force participation cannot be
explained by differences in disability status, marital status, or subsequent births. In short, the
higher minimum wage had an unambiguously negative effect on the ability of welfare
mothers to use work as an exit from public assistance.
How can an increase in the minimum wage reduce work effort? After all. higher wages
are supposed to make work more attractive and draw people into the work force. Why should
welfare mothers react differently and work less after the minimum wage rises?
Consider what happens in the face of a higher wage for a job. The higher minimum
wage draws in an expanded pool of job applicants. Individuals who were unwilling to do a
particular job at $3.35 an hour may be willing to work at $4.25. Overall, the larger pool of
applicants for these jobs reduces the probability that any one individual who applies for a job
will get hired. The probability of getting hired falls most for those with the least skills. How
3
01/17/95
18:22
COMMITTEE ON EDUCATION & LNECR
007
do people respond in this situation?
the higher minimum wage draws in
Many of them find that their skills com-
an expanded pool of job applicants.
pare unfavorably with those newly avail-
[which] reduces the probability that
any one individual who applies for a
able in the market, and conclude that the
job will get hired. The probability of
gelling hired falls most for those with
odds of securing employment make the
the least skills.
process of applying for a job too "expen-
sive" given the expected outcome. This is a process not unlike that surrounding college
applications. Regardless of how much you may want to go to MIT. if you feel that the
competition is so steep as to keep you from gaining admittance you may not even apply.
On the labor demand side of the market a reinforcing pattern takes placc. In the face of
higher costs employers will want to be
In the face of higher costs employers
more sclective about who they hire. The
will want to be more selective about
who they hire. The expanded
expanded applicant pool gives them the
applicant pool gives them the incentive
and ability 10 be more selective
incentive and ability to be more selective.
All other things being equal, employers
will always try to hire the applicant with the best skills for the job. Given the extended period
during which welfare recipients receive benefits-the Ways and Means Committee's Green Book
tells us that 65 percent of recipients arc on the AFDC program for at least 8 years-it is unlikely
that the highest skill applicants will be those seeking an exit from the welfare system.
To test this view of the labor market we asked Dr. Kevin Lang2 at Boston University
to investigate the composition of employment following a minimum wage increase. Dr. Lang's
research also relied on the differences that existed among states in their minimum wage rates.
4
01/17/95
18:23
COMMITTEE ON EDUCATION & LABOR
008
Because of these differences, the 1990-91 federal increase in the minimum wage had a greater
impact in those states that had not raised their minimum than It did In states which already had
implemented higher rates.
Consistent with the labor market just described, Dr. Lang concludes that the displacement
of welfare recipients after a minimum
adults at the minimum wage were
wage mirrored the experience of a larger
displaced by leens and students after
the minimum wuge was increased... A
population: low skill adults at the mini-
$1 difference in average wages in the
food service industry was associated
mum wage were displaced by teens and
with a 9 percentage point decline in
students following a minimum wage in-
the employment of adults at the mini-
mum wage.
crease, and full time employment was
replaced by part time employment. Note
that this is not a new phenomena. A $1 difference in average wages in the food service industry
was associated with a 9 percentage point decline in the employment of adults at the minimum
wage. In 1939 the Department of Labor reported that "workers who had been receiving less
than the [new minimum wage of) 25 cents had been laid off and replaced by more efficient
workers."3 Many teens and students have skills which compare favorably with those of adults
whose skills do not command more than the minimum wage.
Raising the minimum wage will not only reduce the employability of welfare leavers, it
may cvcn increase the number of working adults unable to find a port of entry into the
workforce. Workers with marginal job skills who are barely employable at $4.25 are least likely
to be hired or retained at $5.25. If we are serious about fostering transitions away from welfare
and towards work then we must move away from the "entitlement mentality" that rules
5
01/17/95
18:23
COMMITTEE ON EDUCATION & LABOR
009
federal support programs and accept that the workplace operates under a different set of
rules: a reciprocal relationship emphasizing the ability of workers to pay the cost of their wages
through output and productivity.
The Prospects for Earnings Growth
Our concern for the level of earnings of those leaving welfare centers in part on a great
fallacy: that workers in entry-level jobs, earning at or near the minimum wage, are destined to
stay at this pay scale absent federal intervention. In fact, analysis of the Current Population
Survey shows that while 25 percent of teens aged 16-17 work at the minimum wage. this
percentage falls dramatically with increased time spent in the workplace. By age 30 only 2
percent of workers are employed at the minimum wage and only half of them are cmployed full
time. If 98 percent of Americans can move beyond the minimum wage by age 30, public policy
should focus on the reasons why the remaining two percent cannot move beyond the entry level
and target its efforts on the problems specific to those workers.
Unfortunately, the public policy debate has failed to take into account the earnings growth
that takes place after entry-level work. That debate has merely looked at entry level wages,
pronounced them inadequate, and ignored the Important role that entry level employment
opportunities confer. A number of recent studies have documented this effect.
Using the High School and Beyond Survey, Dr. Jcff Grogger of the University of
California (Santa Barbara) looked at the
earnings growth in the first four
earnings growth of non-college bound
years after leaving high school was
largely unaffected by the industry in
men. Looking only at individuals who
which the worker began his work life
reported never attending college, Dr.
6
01/17/95
18:24
COMMITTEE ON EDUCATION & LABOR
010
Grogger found that earnings growth In the first four years after leaving high school was largely
unaffected by the industry in which the worker began his work life. Even workers who began
in the food service occupations so heavily used in welfare-to-work transitions showed earnings
growth similar to that of other workers.
Looking at workers over a longer term, Dr. Frederick Tannery from the University of
Pittsburgh found similar results. Al-
Even as much as 12 years after
though initial earnings were indeed deter-
entering the labor market there is no
significant difference in earnings that
mined by the industry in which one
can be attributed to the industry in
which и worker was first employed
worked. these differences disappeared
over time and did not re-appear. Even as
much as 12 years after entering the labor market there is no significant difference in earnings
that can be attributed to the industry in which a worker was first employed. Workers who began
in manufacturing were showing earnings levels comparable to those who began in retail trade.
Even more striking, Dr. Tannery documents the earnings growth of individuals who
began work in different sectors. Workers who began in food service in the late 1970s saw
average earnings rise over 400 percent by 1990.
When it comes time to evaluate welfare-to work transitions, the discourse has all too
often assumed that no earnings growth among entry-level workers is possible unless government
intervenes in the labor market. While there are some individuals for whom that may he true,
there is no reason to assume that it need be the defining experience for the vast majority. The
majority-75 percent-of welfare mothers have at least a high school degree', the highest
7
01/17/95
18:24
COMMITTEE ON EDUCATION 3 LABOR
011
education level for half of all Americans. The majority of them are capable of much the same
earnings growth.
Training and Employment Growth
In stark contrast to the consistent carnings growth after entry level employment, the
record of federal training programs can only be described as abysmal. Enrollees who received
classroom training under the Job Training Partnership Act showed lower earnings 18 months
after entering the programs than did a randomly selected control group which never underwent
this training. In the evaluation of the California GAIN (Greater Avenues for Independence)
program carried out by the Manpower Demonstration Research Corporation, the only promising
results were in Riverside County, California. Riverside County relied heavily on moving
individuals into the workforce. The other cvaluation sites, in contrast, relied most heavily on
"job training" and showed markedly lower earnings growth. As Senator Kennedy said last
week, "We have scores of job training programs, costing billions of dollars a year-and workers
are not getting their money's worth." The record of government training efforts pales in
comparison to what we know can happen with private sector work.
Youth and Work
Concern has been voiced over the years that too many of the nation's youth have
shortchanged their educational attainment
Seven to ten years after leaving high
by working rather than devoting full time
school, those students who had worked
moderate hours while in school
to their studies. This, it is feared, will
(roughly 20 or less) were eurning
$4,000 a year more than other
lead to lower skills as an adult and to a
students.
lifetime of low-skill work. Although their
8
01/17/95
18:25
COMMITTEE ON EDUCATION & LABOR
012
earnings as toens may provide them with disposable income greater than their non-working
peers, the price will be paid as adults. In fact, just the opposite is true. Dr. Christopher
Ruhm⁷, University of North Carolina at Greensboro, used the National Longitudinal Survey of
Youth to explore the relationship hetween in-school work and subsequent economic attainment.
He found that youths who worked while in school significantly outcarned students who did not
work. Seven to ten years after leaving high school, those students who had worked moderate
hours while in school (roughly 20 or less) were earning $4,000 a year more than other students.
This cstimation included a lengthy set of variables to control for the influence of family income,
residence, and other socio-demographic characteristics. This is particularly striking given that
most working youths accept employment in low-wage service jobs. These jobs obviously
provided them with a long term benefit in the labor market.
Conclusion
Welfare dependency is not a problem that arosc overnight, and we cannot expect that
welfare reform will immediately end that dependency. Rather, we must accept that the majority
of those leaving welfare will inevitably have to work at an entry-level job at the entry-level
wage. That transition, however, cannot take place if we make the entry-level job unattainable
to those who need them most. The evidence that low-skill adults are displaced by more capable
workers when the minimum wage rises should rule out any such action in the name of wclfare
reform. At the same time, the demonstrated earnings growth that has been seen to take place
from entry-level employment shows that the route to welfare reform lies not in more government
training programs but in more private sector experience. In contrast to the failed training
9
01/17/95
18:25
COMMITTEE ON EDUCATION & LABOR
013
programs of the past, a job, most any job, has shown Itself capable of generating the
earnings growth which will make welfare reform a reality.
10
01/17/95
18:26
COMMITTEE ON EDUCATION & LABOR
014
1. Peter Brandon (Institute for Research on Poverty), The Jobs Taken by Mothers Moving from
Welfare to Work and the Effects of Minimum Wages on this Transition, The Employment Policies
Institute Foundation. January 1995.
2. Kevin Lang (Boston University), Minimum Wage Laws and the Distribution of Employment,
The Employment Policies Institute Foundation, January 1995.
3. Department of Labor, Interim Report of the Administrator of the Wage and Hour Division,
for the period August 15 to December 31, 1938, Washington D.C, 1939.
4. The Employment Policies Institute Foundation, staff report, The Low Wage Workforce.
5. U.S. House of Representatives, Committee on Ways and Means, Green Book, 1992.
6. Senator Edward Kennedy, January 11, 1995, cited in The Daily Labor Report, Bureau of
National Affairs, January 12, 1995.
7. Christopher Ruhm (University of North Carolina. Greensboro), The Effects of High School
Work Experience on Future Economic Attainment, The Employment Policies Institute
Foundation, May 1994.
11
Preliminary:
Comments Welcome
THE EFFECTS OF NEW JERSEY'S MINIMUM WAGE INCREASE
ON FAST FOOD EMPLOYMENT
A RE-EVALUATION USING PAYROLL RECORDS.
David Neumark and William Wascher*
March 1995
*
Neumark is Professor of Economics at Michigan State University, and a faculty research
fellow of the National Bureau of Economic Research. Wascher is Senior Economist at the Board
of Governors of the Federal Reserve System. We thank Bruce Fallick, Harry Holzer, Spencer
Krane, and John Strauss for helpful comments, and David Card and Alan Krueger for providing
their data. We are grateful to Carlos Bonilla of the Employment Policies Institute (EPI), and
to participating franchise owners, for providing us with the payroll data. The EPI is funded by
business contributions and generally opposes minimum wage increases. However, the research
described in this paper was conducted independently of the EPI, and neither author received any
remuneration for conducting the research. The views expressed do not necessarily reflect those
of the Employment Policies Institute, or of the Federal Re erve Board or its staff.
I. Introduction
A recent study by David Card and Alan Krueger (1994) reported evidence that contrasts
sharply with the conventional view that minimum wage increases reduce employment of low-
wage workers. In particular, Card and Krueger (hereafter CK) surveyed fast-food
establishments in New Jersey and Pennsylvania before and after the minimum wage in New
Jersey rose from $4.25 to $5.05. A comparison of changes in employment in New Jersey and
Pennsylvania provides a simple "differences-in-differences" comparison to test the prediction
that minimum wage increases reduce employment of affected workers. Contrary to this
prediction, CK find "no evidence that the rise in New Jersey's minimum wage reduced
employment at fast-food restaurants in the state " and even that "the increase in the minimum
wage increased employment (p. 792). Given the prominence that this study has received,
both in support of recent proposals to increase the federal minimum and as evidence against the
competitive labor market model, we believe that a careful re-evaluation of its results is
warranted.
In this paper, we present new evidence based on actual payroll records from Burger
King and Wendy's franchises in New Jersey and Pennsylvania, most of which are also in CK's
sample. We compare results using these payroll data to those using CK's data, which were
collected by a telephone survey. We have two findings to report.
First, the data collected by CK appear to indicate implausibly large employment
variation over the eight-month period between their surveys. The standard deviations of the
employment changes in their data exceed those in the payroll data by a factor of four to eight.
Second, estimates of the employment effect of the New Jersey minimum wage increase
from the payroll data lead to the opposite conclusion from that reached by CK. Whereas CK's
full sample, as well as their subset of Burger King and Wendy's franchises, points to a positive
1
employment effect, the payroll data indicate a negative effect: For this subset of franchises,
CK's data imply that the New Jersey minimum wage increase (of 18.8 percent) resulted in an
employment increase of 20.8 percent relative to the Pennsylvania control group, an elasticity of
1.10.¹ In contrast, our estimates based on the payroll data suggest that the New Jersey
minimum wage increase led to a 4.8 percent decrease in employment in New Jersey relative to
the Pennsylvania control group, an elasticity of employment with respect to the minimum wage
of -0.25.
П. Card and Krueger's Results
The first row of Table 1 reports descriptive statistics and the main result from CK's
data: On average, over a period of about eight months following New Jersey's minimum wage
increase, employment at fast-food restaurants in New Jersey grew by 2.72 more full-time
equivalents (FTE's) than in Pennsylvania (column (6)).² As shown in column (1), this
difference arises from a small employment increase in New Jersey (0.66 FTE's) and a large
employment decline in Pennsylvania (2.1 FTE's).
The first row of the table also illustrates that there are some extremely large employment
changes in CK's data. The largest employment decline is 41.5 FTE's, the largest increase is 34
FTE's, and the standard deviations of employment change are 8.4 in New Jersey and 10.8 in
¹For the full sample, their estimates imply that the minimum wage increase led to an
employment increase of 12.8 percent, or an elasticity of 0.68.
²As in CK, full-time equivalents are defined as the number of full-time non-management
employees, plus one-half the number of part-time non-management employees, plus the number
of management employees. We exclude those restaurants that closed, which is the reason the
figures differ slightly from those in CK's Table 3.
2
Pennsylvania.³ Given that the mean level of employment in the first survey was 21.1, the
variability of employment change in CK's data is surprising, and provides a motivation for re-
evaluating their minimum wage study using an alternative data source.
III. The Payroll Data
By contacting franchise owners, administrative payroll data were obtained for Burger
King and Wendy's franchises in over one-third of the zip codes in which CK's restaurants were
located. CK's data set does not include a unique restaurant identifier (such as an address), so
we were unable to match up individual units. However, their data set does include the first
three digits of the zip code in which each surveyed restaurant is located, enabling us to match
units by location. Whenever possible, an attempt was made to collect data from all franchises
in a chain in the zip code, so that the restaurants included in CK's survey should also appear in
our data set. We were able to obtain data on all franchises in a chain for seven zip code/chain
pairs (three in Pennsylvania and four in New Jersey), and data on some franchises for an
additional seven zip code/chain pairs. All together, we were able to obtain data on 71 Burger
King and Wendy's franchises. There were 179 such franchises in CK's data set.
Contact was made with franchisees identified in the Chain Operators Guide. These
³A corresponding statistic appears in the footnotes to CK's Table 4, where they report that
the standard deviation of employment change for the whole sample is 8.8.
We have so far been unable to obtain data from other chains or company-owned stores
The initial data collection effort focused on Burger King restaurants because they constitute over
40 percent of CK's sample.
⁵The initial data collection efforts focused on current franchisees in the zip code. For
Pennsylvania, we have been able to verify from information on franchise agreements that, for
those zip codes for which we have data on all franchises currently operating in the zip code, we
also have data on all franchises operating at the time of CK's study For New Jelsey, we have
so far only been able to verify this for the Wendy's franchises.
3
franchisees were asked to retrieve their payroll records for the pay periods spanning the dates
for each wave of CK's survey.⁶ Generally, the restaurants submitted data either orally or by
fax on the total number of hours worked by non-management employees.⁷ We then converted
the hours data into full-time equivalent employees (FTE's) assuming a full-time workweek of 35
hours.
The payroll data that we obtained are more limited than CK's data in two respects.
First, we have payroll data only for Burger King and Wendy's franchises. Second, we were
able to obtain data only on non-management employment, whereas CK also had data on
managerial employment. On the other hand, our measure of total hours probably provides a
better estimate of FTE's than CK were able to obtain from their survey, since they simply
recorded the numbers of full-time and part-time workers.
Given the limitations of our data, we start by examining the sensitivity of the
differences-in-differences estimates using CK's data, restricting attention first to non-
management FTE's, then to franchises, and finally to Burger King and Wendy's franchises.
This provides a test of whether CK's estimates are robust to restricting the universe of sampled
restaurants, or to restricting attention to non-management employment, and establishes a
baseline with which to compare the results from the payroll data. These estimates are reported
in the remaining rows of Table 1. As column (6) shows, none of these restrictions overturns
⁶Because we cannot uniquely identify the restaurants in CK's data set (and because CK's
data set does not include the date of the first wave of the survey), this is the closest we can
come to matching up the time period in the two data sources.
We also considered attempting to obtain ES-202 reports. However, these are reported by
company, not establishment, and most franchisees own many restaurants, frequently in a
number of chains. We did, however, independently contact each franchise owner who supplied
data, and verified that they provided numbers from their payroll databases. Frequently, the
franchisees obtained the data directly from ADP.
4
CK's basic result that employment grew faster in New Jersey, although the estimated standard
error of the difference in mean employment changes grows as the sample size falls.⁸ If
anything, the estimated positive employment effect is larger for non-management employees at
Burger King and Wendy's franchises.⁹ Thus, our findings (reported below) from the payroll
data of negative employment effects of minimum wages are unlikely to arise from restricting
attention to non-management employment at these franchises.
IV. Comparisons of the Employment Variability in the Payroll and Telephone Survey Data
Table 2 provides a comparison of CK's data and the payroll data, broken down by the
first three digits of the zip code in which franchises are located. In order to provide a fair
comparison of variability in the two data sources, when we obtained data for more than one
payroll period within the time frame of CK's surveys, we randomly selected data for one
period. 10.11 Later, when we examine the implied minimum wage effects using the payroll data,
we obtain the most accurate estimates possible by averaging over data for multiple payroll
periods to estimate employment levels.
The top panel reports on zip codes for which we have data from all franchises. The
⁸CK also report, in row 3 of their Table 5, that excluding managers has no effect on their
conclusions.
⁹The same is true if the implied change is calculated relative to initial employment; thus,
this larger employment change is not attributable to Burger King and Wendy's franchises having
higher employment levels.
¹⁰Averaging over multiple pay periods would tend to decrease the variability of employment
change in the payroll data, compared with CK's data.
"We also exclude, as noted earlier, the restaurants in CK's data set that closed by the
second wave of the survey. Since they set employment to zero after the restaurant closes, and
we obtained data on only one such restaurant, the inclusion of the e restaurants would make the
relative variability in their data even more pronounced.
5
payroll data indicate substantially less variation in employment over time than do CK's data.
For these zip codes, the standard deviations of employment change in CK's data are 9.1 for
New Jersey and 18.4 for Pennsylvania. In contrast, in the payroll data the corresponding
standard deviations are 2.2 and 2.3. The minimums and maximums similarly are less extreme
in the payroll data. The same is also true in the second panel, which reports data for zip codes
in which we have data on only some franchises.
The higher variability in CK's data is not driven by one or two outliers. Figures 1 and 2
show histograms for the initial employment levels and employment changes in the two data
sources. Figure 1 is for those zip codes in which we have payroll data on all franchises, and
Figure 2 is for those zip codes in which we have payroll data on any franchise. The upper left-
hand panels in each figure show the distribution of initial employment levels in CK's data,
while the lower left-hand panels show the same distribution for the payroll data. In zip codes
for which we were able to obtain data on all franchises (Figure 1), the employment levels in the
payroll data are more clustered in the 10-25 range and exhibit fewer extremely large values.
The middle panels show the same histograms for employment levels at the time of the second
survey. Again, the payroll data exhibit much less employment variability, although CK's data
are less variable in the second wave than in the first. Finally, the two right-hand panels show
the histograms for employment changes. Here the contrast is striking, with the employment
changes in CK's data much more dispersed than in the payroll data. The same qualitative
conclusions are apparent in Figure 2, where we show histograms for franchises in all zip codes
represented in the payroll data.
We find the striking variability of employment changes in CK's data relative to that in
the payroll data very troublesome. We suspect that the problem is that the questions eliciting
employment levels in CK's survey were too imprecise. CK first verified that they were
6
speaking with a manager or assistant manager. They then asked "How many full-time and part-
time workers are employed in your restaurant, excluding managers and assistant managers?"
Survey respondents were not given any time period over which to define employment, and their
answers may well have ranged from employment on the shift during which the telephone survey
took place, to employment over an entire payroll period. Moreover, because different managers
may have been interviewed in the two waves of the survey, there is no reason to believe that the
responses in the first and second waves were based on the same "definition" of employment,
which may explain the much higher variability of employment change. In contrast, the payroll
data provide total hours worked for a well-defined payroll period (which is specified as either
weekly, bi-weekly, or monthly), on a consistent basis for the two survey periods, and should
therefore be more reliable. 12
V. Representativeness of the Payroll Data
Having documented what seems like excess variability of employment change in CK's
data for the franchises and zip codes for which we have payroll data, a legitimate concern is
whether or not the universe from which observations in the payroll data set are sampled are
representative of CK's sample in terms of the variability of employment change. For example,
managers in particular chains may be more involved with maintaining payroll records and
12 As a check on the validity of the payroll data, we verified that there were no instances in
which CK's data indicated a restaurant closing, while the payroll data did not indicate a
restaurant closing, in a zip code/chain combination for which we obtained payroll data on all
franchises. (While CK's data appear to indicate overly large employment changes, they were
careful to document restaurant closings, so this is one dimension on which we can assess the
reliability of our data.) In fact, there was only one restaurant closing in the payroll data set,
and there was not a corresponding closing in the same chain and ZID code as in CK's data. But
in the Zip code/chain combination in which the closing occurred, we sampled twice as many
franchises as did CK.
7
therefore have answered the telephone survey on a more consistent basis over time.
The histograms in the first two columns of Figure 3 address this question. The first
column shows the histograms for employment change for the Burger King/Wendy's, Roy
Rogers, and Kentucky Fried Chicken (KFC) restaurants in CK's data. In fact, the histograms
indicate more variability of employment change in the Burger King and Wendy's restaurants
than for either of the other two chains. The data for KFC, in particular, exhibit considerably
less variability, although there are still some rather large employment changes. The second
column displays the same information for franchises only, with similar conclusions. Thus,
while we have no way of contrasting the variability of employment change in the two data
sources for Roy Rogers and KFC, it seems reasonable to believe that we overstate to some
extent the excess variability of employment change in CK's survey data by focusing on Burger
King and Wendy's, although true employment may also be more variable in these latter chains.
On the other hand, the last column of Figure 3 shows that the variability of employment
change in CK's data in the zip codes for which we have payroll data is similar to the variability
in the zip codes for which we do not have payroll data. Thus, along this dimension we do not
overstate the variability of employment change in CK's data.
Before turning to a comparison of estimated employment effects in the payroll data and
the survey data, it is also appropriate to consider the representativeness of the universe from
which the payroll data were drawn in terms of employment effects of minimum wages. In
Table 1, we showed that restricting the sample to Burger King and Wendy's franchises (and to
non-management employment) does not alter the finding of a positive employment effect of
minimum wages in CK's data. The first two columns of Table 3 explore this question more
fully, reporting estimates of the employment effect of minimum wages for Burger King and
Wendy's franchises, and then separately for Roy Rogers and KFC restaurants, using CK's
8
data. 13 The estimated employment effect for Burger King and Wendy's restaurants is positive
and significant whether or not we restrict attention to franchises only, similar to the findings in
Table 1. The estimated effect for Roy Rogers is smaller than for the sample of all restaurants,
and effectively zero for franchises only. In contrast, the estimates for KFC restaurants are
negative and relatively large (although insignificant). This contrast across chains is of interest,
because the lower variability of employment change for Roy Rogers, and especially for KFC
restaurants, suggests that, if we had payroll data for these chains, any differences between the
payroll and survey data might be less pronounced. However, these regression estimates indicate
that the chains with the greatest variability of employment change (based on the survey data)
also contribute the most to the positive employment effects of minimum wages in CK's data.
Thus, if (as reported below) the payroll data indicate negative, rather than positive, employment
effects for these chains, it is reasonable to believe that a similar conclusion would be reached
from payroll data on all chains.
Finally, we are also interested in the representativeness of our sampled zip codes in
terms of the estimated employment effects of minimum wages. This is of interest for two
reasons. First, had we sampled zip codes in Pennsylvania with particularly low employment
growth and zip codes in New Jersey with particularly high employment growth--so that for the
zip codes we sampled the difference between employment growth in New Jersey and
Pennsylvania was particularly high--then regression to the mean could lead to lower positive
estimated employment effects of minimum wages than CK obtain, or even negative effects
(since the regression to the mean would be in opposite directions in the two states). Second, we
want to be sure that the different results we get for the payroll data reflect differences between
¹³In this table, we report regression results rather than differences in mean employment
changes.
9
the two data sources, not differences between the zip codes for which we do and do not have
payroll data. The last two columns of Table 3 indicates that the zip codes for which we have
payroll data are representative in terms of differences in employment growth. The regression
estimates for the zip codes for which we do and do not have payroll data are nearly identical,
both indicating faster employment growth in New Jersey of 3.7 FTE's.
VI. Comparisons of Estimated Employment Effects in the Payroll and Telephone Survey Data
The average employment changes by state, and the implied employment effects of
minimum wages, also differ in the two data sources. The most compelling comparison is for
those zip code/chain combinations for which we have complete data. As shown in the top panel
of Table 2, for this subset of the data CK's data indicate employment declines in Pennsylvania
in two of the three zip codes. In contrast, the payroll data show employment increases in all
three zip codes. As shown in the row labeled "Total, PA," the payroll data indicate average
employment growth of 3.4 FTE's, compared with an average employment decline of 1.4 FTE's
in CK's data. For New Jersey, CK's data indicate faster employment growth for two zip
code/chain combinations than do the payroll data, while the payroll data indicate faster
employment growth than CK's data for the other two combinations. On average, however,
CK's data show faster employment growth in New Jersey (4.4 FTE's, vs. 2.6 FTE's in the
payroll data). Because CK's statistical experiment identifies the effect of minimum wages on
employment from the difference between employment growth in New Jersey and Pennsylvania,
these differences in average employment growth suggest that the payroll data may imply
negative, rather than positive, employment effects from an increase in the minimum wage.
Table 4 reports the fundamental results from our re-evaluation of the New Jersey-
Pennsylvania minimum wage study using the payroll data. The first row repeats the results
10
from Table 1 using CK's data, showing (in column (5)) that non-management employment grew
by an additional 4.25 FTE's in New Jersey relative to Pennsylvania, following the minimum
wage increase in New Jersey. The regression estimate in column (6), which controls for
differences in employment growth by chain, is nearly identical, with an increase of 4.22 FTE's
in New Jersey relative to Pennsylvania. Columns (7) and (8) show the implied elasticity of
employment with respect to the minimum wage from this estimate, and the corresponding
percent increase in employment. The implied elasticity of 1.10 and the increase in employment
of 20.8 percent (when the minimum wage rose by 18.8 percent) are surprisingly large, but
estimated imprecisely.¹⁴
The second row of Table 4 shows the results obtained when we use the payroll data
instead of CK's data. In contrast to CK's results, the payroll data imply a decrease of 0.97
FTE's, which is significant at the ten-percent level. The implied elasticity of employment with
respect to minimum wages is -0.29, which is a bit larger than findings in other minimum wage
studies suggesting that the elasticity lies in the range -0.1 to -0.2 (e.g., Brown, et al., 1982, and
Neumark and Wascher, 1992). Of course, it is not clear what elasticity we ought to expect for
fast-food employment based on the existing research, which estimates overall employment
effects for teenagers or young adults. 15
¹⁴The high elasticity is partly attributable to the restrictions imposed on the sample, as
outlined in Table 1. For the total change in FTE's for all units, the elasticity implied by the
estimates in Table 1 is 0.68. Looking at non-management employment only, the elasticity rises
to 0.87. Restricting attention to franchises, it rises to 0.93. Finally, restricting attention to
Burger King and Wendy's franchises only, the elasticity rises to 1.11. Nonetheless, we regard
even an elasticity of 0.68 as surprisingly high.
¹⁵CK argue that if the conventional labor demand model is correct such estimates should
provide a lower bound for minimum wage effects on fast-food employment, presumably because
a relatively large proportion of fast-food workers earn at or near the minimum wage. However,
the minimum wage efect will also depend on the elasticity of substitution between labor and
other inputs (or between low-skill and high-skill labor). We are not aware of any estimates of
11
Finally, to this point we have used the payroll data set in which we randomly selected
one payroll record within the periods in which CK's surveys were conducted, in order to
provide the fairest comparison of the variability of employment in the two data sources.
However, we can obtain a more precise estimate of employment in these periods by averaging
across all possible payroll records within CK's survey periods. Estimates using these averages
are reported in the last row of the table, and in our view provide the best estimates from the
payroll data. In this case, the estimated disemployment effect of the New Jersey minimum
wage increase is slightly smaller (-0.82), and again significant at the ten-percent level. This
estimate implies an elasticity of employment with respect to a change in the minimum wage of
-0.25 and an employment loss of 4.8 percent in New Jersey relative to Pennsylvania.¹⁶
CK also present results in which they regress employment changes on a measure of the
gap between the minimum wage and the starting wage initially paid by the restaurant, and find a
positive effect, in contrast to the conventional prediction. We do not have information on the
starting wages paid at the franchises on which we have payroll data, and therefore cannot assess
this evidence as directly as we can address CK's differences-in-differences results. However,
we can estimate the average starting wage in the zip code, assign this average to establishments
in the payroll data that are located in the same zip code, and estimate their specification.
Such results are reported in Table 5. We begin by reporting CK's regression for their
whole sample, for non-management employment, using the actual starting wage to construct the
the relative magnitudes of the elasticity of substitution in this industry.
¹⁶One might also consider weighting by the number of payroll reco. ds used in constructing
each average. This had little influence on the estimates.
12
wage gap measure.¹⁷ The implied elasticity with respect to the minimum wage is 0.86. The
second row reports estimates of the same equation, for the subset of Burger King and Wendy's
franchises. The elasticity is higher than the corresponding elasticity of 1.10 from the
differences-in-differences comparison in Table 4. The third row shows the effect of using the
mean starting wage in the zip code (for the corresponding chain) to construct the wage gap
measure, instead of the actual reported starting wage, as we have to do with the payroll data.
The point estimate is similar, and the standard error increases, as we would expect. The
following row reports results for CK's data, using only those zip codes for which we have
payroll data. As for their larger sample, the estimated coefficient on the wage gap is positive,
indicating that any differences that arise from using the payroll data are not attributable to the
restriction to a subset of zip codes.
Finally, we move on to the results from the payroll data. The fourth row of the table
reports estimates of the same specification, using the payroll data, where we use a randomly
selected payroll record within CK's survey dates. In contrast to the results obtained with CK's
data, the estimated coefficient on the wage gap variable becomes negative, with a t-statistic of
about one. In the last row, we report what we believe to be our best estimates, using the
averages of employment levels in the payroll records. We again get a negative effect of the
wage gap variable, although it is still insignificant. The implied elasticity is -0.19, in line with
the elasticity obtained from the differences-in-differences comparison, and in contrast to CK's
results.
"The estimated coefficient of 16.5 is close to the estimate reported in column (iii) of their
Table 4. Again, the imple differs slightly because we have excluded those restaurants that
closed by the time of CK's second survey.
13
VII. Conclusions
This paper describes our re-evaluation of Card and Krueger's findings from the New
Jersey-Pennsylvania minimum wage study, using data from actual payroll records for a sample
of fast-food restaurants which overlaps considerably with CK's sample. Our analysis of these
payroll data reveals two findings. First, the data collected by CK indicate employment variation
with standard deviations four to eight times larger than is observed in the payroll data, variation
that, to us, seems implausibly large. Second, whereas. CK's data imply that the New Jersey
minimum wage increase led to an employment increase in New Jersey relative to the
Pennsylvania control group, the payroll data imply that the minimum wage increase led to a
4.8 percent decline in employment in New Jersey relative to the Pennsylvania control group, or
an elasticity of -0.25. Thus, the payroll data raise doubts regarding the quality of CK's data,
and suggest, contrary to CK's conclusion, that New Jersey's minimum wage increase had a
negative effect on employment.
14
References
Brown, Charles, Curtis Gilroy, and Andrew Kohen. 1982. "The Effect of the Minimum
Wage on Employment and Unemployment." Journal of Economic Literature, Vol. 20, No. 2,
pp. 487-528.
Card, David, and Alan B. Krueger. 1994. "Minimum Wages and Employment: A Case
Study of the Fast-Food Industry in New Jersey and Pennsylvania." American Economic Review,
Vol. 84, No. 4, pp. 772-793.
Neumark, David, and William Wascher. 1992. "Employment Effects of Minimum and
Subminimum Wages: Panel Data on State Minimum Wage Laws." Industrial and Labor
Relations Review, Vol. 46, No. 1, pp. 55-81.
Table 1: Employment Changes in the Card/Krueger Data,
Alternative Samples and Employment Definitions
By State
NJ PA
Diff.
Mean
Std. dev.
Min.
Max.
Obs.
in diff.
Std. error
All units:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Change in Total FTE's
Pennsylvania
-2.1
10.8
-41.5
22.8
74
2.72
1.35
New Jersey
.66
8.4
-34
34
304
Change in Non-management
FTE's
Pennsylvania
-2.3
10.7
-43.5
23.8
75
2.90
1.33
New Jersey
.59
8.2
-34
35
310
Franchises only:
Change in Non-management
FTE's
Pennsylvania
-2.4
12.4
-43.5
23.8
49
3.23
1.90
New Jersey
.88
8.8
-34
35
203
Burger King and Wendy's
franchises only:
Change in Non-management
FTE's
Pennsylvania
-3.0
13.0
-43.5
23.8
41
4.25
2.23
New Jersey
1.3
10.0
-34
35
138
Includes all establishments open for both the first and second interviews.
Table 2: Card/Krueger Data vs. Payroll Data, Changes in Non-Management Employment, Burger King and Wendy's Franchises
Card/Krueger Data
Payroll Data
Mean change
Mean change
in FTE's
Std. dev.
Min.
Max.
Obs.
in FTE's
Std. dev.
Min.
Max.
Obs.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Zip codes with
payroll data on
all franchises:
Burger King:
PA, 194
-5.4
14.3
-30
15
8
2.6
2.3
-2.0
6.9
10
PA, 190
6.0
22.7
-43.5
23.8
7
4.1
1.5
1.9
6.2
9
PA, 189
-11.3
14.5
-21.5
-1
2
4.0
3.9
0.7
9.0
4
NJ, 088
8.9
8.6
-5
22.5
7
2.9
2.5
-1.6
4.9
8
NJ, 086
-2.6
10.3
-16
9
4
2.2
2.1
-1.0
4.7
5
NJ, 072
0.0
0
0
1
3.2
0.8
2.7
3.8
2
Wendy's:
NJ, 088
4.6
6.7
-2.5
13.5
4
2.2
2.5
-3.0
4.6
8
Total, PA
-1.4
18.4
-43.5
23.8
17
3.4
2.3
-2.0
9.0
23
Total, NJ
4.4
9.1
-16
22.5
16
2.6
2.2
-3.0
4.9
23
Zip codes with
ayroll data on
some franchises:
Burger King:
NJ, 087
2.2
4.7
-1.5
7.5
3
3.3
1
NJ, 085
3.6
3.5
-0.5
8
4
2.2
0.8
1.3
3.4
5
NJ, 083
4.3
1.8
3
5.5
2
3.5
1
...
...
NJ, 080
4.0
9.3
-14
26
14
4.2
I
NJ, 078
-5.4
11.7
-25.5
4
6
0.5
1.6
-0.7
2.7
4
NJ, 076
3.6
9.8
-13.5
18.5
7
2.5
1.4
0.7
4.5
6
NJ, 070
1.2
9.7
-23.8
17
20
2.9
1.4
1.1
5.0
7
Total, NJ
1.8
9.2
-25.5
26
56
2.4
1.5
-0.7
5.0
25
We cannot match up data establishment by establishment within each chain/zip code cell, since we cannot identify individual
establishments in the Card/Krueger data. FTE's in the Card/Krueger data are the number of non-management full-time workers plus
one-half of the number of non-management part-time workers. FTE's in the payroll data are total non management hours divided by
35 Card and Krueger's initial survey was taken over the period Feb. 15-March 4, 1992, and the second was taken over the period
Nov. 5-Dec. 31, 1992. Because we cannot match establishments across the two data sources, and because CK's data set does not
include interview dates for the first wave, we simply obtained records for as many payroll periods as possible within these dates.
For the payroll data, we have data on one to four payroll periods that fall within this period. We randomly selected one payroll
period. Payroll data are reported either weekly, bi-weekly, or monthly. The monthly reports refer to February or November. We
divided hours reported by 2 for bi-weekly reports, and by 4 for monthly reports.
110
2.75
109.
10
L/O
35
28'
35/110
Figure 1 - Employment Levels and Changes in the Two Data Sources
Zip Codes with Payroll Data on All Franchises
25
25
31
Fraction
Fraction
Fraction
0
0
I
II
I
0
0
0
a
10
2D
30
4b
50
ab
70
d 10 2D 30 4b 50 eb 70
- 40
-10
-20
-10
d
1b
2b
3b
Nave 1 Employment, Card/Krueger Data
Wave 2 Employment, Card/Krueger Data
Employment Change. Card/Krueger Data
.25
25
347828
Fraction
Fraction
Fraction
0000
0
0
0
B
d
1b
2b
so
4b
so
ab
70
d
10
ab
10
so
50
ab
70
-40
-10
-20
-10
d
1b
2b
3b
wave 1 Employment. Payroll Data
Wave 2 Employment, Payroll Data
Employment Change, Payroll Data
STATA™
Figure 2- - -Employment Levels and Changes in the Two Data Sources
Zip Codes with Payroll Data on Any Franchises
29
21
29
Fraction
Fraction
Fraction
0
00
0
0
0
a
.
8
B
0
0
d
2D
10
40
50
60
70
d
10
20
30
a
50
6b
70
4a
-30
-20
-10
0
10
20
30
10
Nave 1 Employment, Card/Krueger Data
Nave 2 Employment, Card/Krueger Data
Employment Change, Card/Krueger Data
25
352113
.25
Fraction
Fractine
Fraction
0
o
0
O
d
10
2D
30
=
50
80
70
d
10
20
10
so
8
ab
7b
-40
-30
-20
-10
a
=
2b
30
wave 1 Employment. Payroll Data
wave 2 Employment, Payroll Data
Employment Change, Payroll Data
STATA™
Figure 3- - Histograms by Ownership, Restaurant Chain, and Zip Code
25
25
25
Fraction
Fraction
Fraction
0
o
D
8
a
a
0
o
a
B
0
0
B
R ARR
hb
DO
0
-40
-20
0
do
10
20
90
-40
-90
-20
to
d
30
10
20
90
40
-30
-20
-10
&
10
20
30
CR Date, BK/Neney's Restaurants
CK Date, BK/Wendy's Frenchises
CK Date, BK/Wendy's Franchises, Lip Codes with Payrell Date
25
25
25
Fraction
Fracties
Fraction
0
06
0
0
0
0
0
00
D
0
40
-20
0
10
20
30
-40
-90
-20
0
10
-30
2b
10
-40
10
-20
-
0
d
or
20
20
CM Data. Roy Regers Restaurants
CK Deta. Rey Regers Franchises
CK Deta. BK/Wandy's Franchiess, ID Codes without Peyroll Data
29
25
Fraction
Frection
¥
00
0000
I
0
0
40
-30
-20
10
6
1b
20
30
-40
-30
-20
-10
d
1b
20
30
CK Date, KFC Restsurants
CK Data, KFC Franchises
STATA™
Table 3: Regression Estimates of Minimum Wage Effects in Card/Krueger Data,
by Ownership, Restaurant Chain, and Zip Code
Zip codes with
Zip codes without
All Restaurants
Franchises
payroll data
payroll data
(1)
(2)
(3)
(4)
BK/Wendy's
4.51
4.22
3.70
3.71
(1.71)
(1.93)
(3.13)
(2.41)
Obs.
213
179
89
90
Roy Rogers
1.72
0.09
(1.84)
(3.60)
Obs.
92
29
KFC Restaurants
-1.08
-1.79
(1.82)
(2.91)
Obs.
80
44
See notes to Table 1. Each entry is the estimated coefficient of the New Jersey dummy variable from a regression of the change in
non-management employment on this dummy and an intercept. For samples including franchises and company-owned stores, a
dummy is also included for company-owned stores. For sample including Burger King and Wendy's establishments, a dummy
variable for Wendy's is included. Standard errors are reported in parentheses.
Table 4: Card/Krueger Data vs. Payroll Data, Changes and Percent Changes in Non-Management Employment,
Burger King and Wendy's Franchises
PA
NJ
Regression
Effect of
Mean change
Mean change
Diff. in
est. of
Implied
NJ minimum
in FTE's
Obs.
in FTE's
Obs.
mean change
difference
elasticity
wage increase
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Card/Krueger
-3.0
41
1.3
138
4.25
4.22
1.10
20.8%
data:
(2.23)
(1.93)
Payroll data:
3.4
23
2.5
48
-0.97
-0.92
-0.29
-5.4%
(0.57)
(0.53)
Payroll data, using
averages of payroll
3.4
23
2.1
48
;
-0.88
-0.82
-0.25
-4.8%
records:
(0.51)
(0.47)
See notes to Table 1. The regression estimate is from a regression of the change in employment on the intercept, a dummy variable
for New Jersey, and a dummy variable for the chain. The elasticities and implied effects in columns (7) and (8) are computed at the
sample means, using the regression estimates.
Table 5: Card/Krueger Data vs. Payroll Data, "Wage Gap" Regressions for Changes and Percent Changes in
Non-Management Employment, Burger King and Wendy's Franchises
Wage gap using
mean starting wage
Wage gap
in zip code
R²
N
Elasticity
(1)
(2)
(3)
(4)
(5)
Card/Krueger data,
16.5
0.03
366
0.86
all restaurants:
(5.9)
Card/Krueger data,
Burger King and Wendy's
28.0
0.04
168
1.28
franchises:
(10.2)
27.4
0.02
168
1.25
(13.6)
Card/Krueger data,
Burger King and Wendy's
franchises, zip codes
37.9
0.04
84
1.67
with payroll data:
(23.4)
Payroll data:
-4.2
0.02
69
-0.22
(4.0)
Payroll data, using
verages of payroll
-3.5
0.03
69
-0.19
records:
(3.6)
The mean wage gap is calculated from the Card/Krueger data by zip code using the appropriate sample. The sample is smaller for
CK's data because the starting wage had to be available. The elasticity is evaluated at the sample means of the starting wage (or the
mean starting wage in the zip code calculated from the Card/Krueger data), the mean employment level, and a minimum wage of
$4.25. All regressions also include dummy variables for the restaurant chains. Standard errors of the regression estimates are
reported in parentheses.
, v 1 1
MINIMUM WAGE QUESTIONS RELATED TO THE CHIEF ECONOMIST'S
BOOK
Q:
In your Chief Economist's recent book, it is written, "the minimum wage is a classic
example of an employer mandate." Why are you willing to impose another unfunded employer
mandate on American business? Won't this bill fall under the new unfunded mandates bill on
state and local governments?
Given that the real value of the minimum wage has eroded so much over the last 15 years it is
now much less of a mandate on businesses and the public sector than it used to be. And last year
the after-tax profits of the S&P 500 hit a six-year high. Productivity has been growing. Most
businesses can, thus, afford the increase in the minimum wage.
Q:
The President has said that the EITC is a far more effective way of lifting the poor out
of poverty than the minimum wage. And your Chief Economist's study on the minimum wage
found that the effect of a minimum wage increase on the standard of living of families with low
earnings was modest. Shouldn't we just rely on expansions of the EITC to lift families out of
poverty?
The minimum wage and the EITC, working together, can to help lift families out of poverty. The
President expanded the Earned Income Tax Credit (EITC) as a way for low and moderate income
families to make ends meet. But we can not rely on the EITC alone to make work pay.
Between 82 and 86 percent of eligible workers receive the EITC. Further expansions of the EITC
would drain the Treasury, and either increase the phase-out distortions associated with the EITC
or reduce the targeting of the program. While the minimum wage makes every hour of work pay,
the EITC is distributed in a single lump-sum payment. Nonetheless, the minimum wage
complements the EITC.
The President and Congress expanded the EITC in the 1994 budget without a single Republican
vote.
Q:
According to your Chief Economist, when you spoke last summer about increasing the
minimum wage from $4.25 to $4.75, the value of low-wage firms such as restaurants and hotels
decreased by 1 to 2 percent relative to the market. Now, you propose to increase the minimum
wage by 90 cents. Won't an increase in the minimum wage cause the value of these firms to
decline even more? Isn't this another example of President Clinton proposing policies that are
anti-business and anti-profits?
It is important to recognize that the change in value of low-wage firms dissipated within 10 days
of the news that I proposed increasing the minimum wage. My memorandum hardly had an effect
on the stock market values of firms affected by the minimum wage.
The last time the minimum wage was increased (1990-91), affected businesses saw their profits
skyrocket relative to the market. From 1991 to 1993, businesses, that cited the minimum wage
increase as leading to higher costs in their annual report, saw their profits increase an astonishing
50 percent relative to the rest of the market. As Card and Krueger note in their book, there is
no systematic evidence to suggest that news about a minimum wage hike induces investors to
adjust their valuation of firms downwards.
During the past 2 years, American companies got much of what they wanted -- lower deficits and
two historic market-opening trade pacts.
Q:
The minimum wage is overrated as an effective method to reduce poverty. Your Chief
Economist has written that, "...proponents [of the minimum wage] tend to exaggerate its effects
on poverty." And he called the minimum wage a "blunt instrument for reducing overall poverty."
If the minimum wage is not going to significantly help the working poor, then why should we
consider this bill?
The minimum wage is perfectly targeted for low wage workers. However, wage and family
income are not the same thing, but minimum wage workers are disproportionately poor. Nearly
50 percent of workers who earn the minimum wage are part of families that are in the bottom
20 percent of working families; families that earn less than $360 a week. Further, the average
minimum wage worker brings home about half of his or her family's earnings.
For a full-time, year round minimum wage workers, a 90 cent increase would raise yearly income
by $1,800 -- as much as the average family spends on groceries in over 7 months. And the
minimum wage increase provides another crucial measure to reward work and ensure that there
is a strong incentive to choose work over welfare.
Q:
Your Chief Economist finds that after the increase in the minimum wage in New Jersey,
the price of meals at the restaurants affected increased by 4 percent. If you consider that lower-
income workers spend more of their money on food than do higher-income workers, won't a
minimum wage increase help only the lucky few, and disproportionately hurt all low-income
workers by raising their cost of living?
An increase in the minimum wage will provide a pay raise to over 11 million working
Americans, so a minimum wage hike will help more than a lucky few.
A recent independent study by WEFA concluded that the President's proposal to raise the
minimum wage would increase the overall price level by less than one-tenth of one percent. In
other words, a good that costs $1,000 would then cost $1,001. Providing a pay raise to 11 million
people at a cost of $1 per thousand dollars spent is a tradeoff I will gladly accept.
Q:
In 1988 the CBO estimated that increasing the minimum wage to $5.00 would cause up
to one-half million workers to lose their jobs. If you care about the jobs of American people so
much, why are you proposing a massive job killing bill?
The numbers you cite come from a 1988 Congressional Budget Office study which estimated that
an increase in the minimum wage from $3.35 -- the minimum at the time -- to $5.05, a 50
percent wage increase, would eliminate between 250,000 and 500,000 jobs. A 50 percent increase
in the current minimum wage of $4.25 would amount to $6.40 an hour. The estimate that you
cite -- which has also been included in the RNC talking points -- has little bearing on the current
debate on the minimum wage.
MAR-20-1995 15:44
DEA ROOM Lab
202
265
6853
JUI
[The following questions from CONG. DeLay
were submitted for the Record. Responses were provided by the
Council of Economic Advisors
I
Ion, if you
could send some info
re: these questions,
MINIMUM WAGE
that would be. great. -CF
In his State of the Union speech, President Clinton asked Congress to increase the
minimum wage. He has proposed an increase of 90 cents to $5.15 per hour.
What are the economic costs, as you see it, to raising the minimum wage?
If there aren't any, and this is the best way to help the working poor, why
not raise it to $10 per hour? What rationale did you use to come up with
the 90 cent increase?
Surely raising the minimum wage will raise costs for state and local governments and
the private sector.
Do you agree?
Isn't this essentially an unfunded mandate?
In June of 1992, the President said, "We can increase the earned income tax credit by
a couple of billion dollars a year and, far more efficiently than raising the minimum wage, lift
the working poor out of poverty."
Was the President wrong when he made this statement and if not, why has
he proposed this minimum wage increase while at the same time scaling back
the earned income tax credit?
You've stated that you believe that raising the minimum wage is the best way to help
the working poor. CBO staff economists, however, have shown that 85% of minimum wage
workers are not poor but are teenagers in middle income families.
Aren't the President's efforts misguided in this area?
Do you agree that the EITC is a better way to increase the paychecks for
families that really need it? Isn't it better than increasing the minimum
wage which is a mandate of business and is questionable in terms of whether
it's helpful to the families that need the income?
Post-It™ brand fax transmittal memo 7671
# of pages
/
To Co. Jon Orsgog
From Chris Foote
Co.
Dept. Fax Dept. of Labor
Phone 395-3142
219-4902
Fax 395-6853
TOTAL P.001
EA
POON
328
IDE
198
6850
301
[The following questions from CONG. DeLay
were submitted for the Record. Responses were provided by the
Council of Economic Advisors
7
Ion, if you
could send some info
re: these questions,
MINIMUM WAGE
that would be.great.-CF
In his State of the Union speech, President Clinton asked Congress to increase the
minimum wage. He has proposed an increase of 90 cents to $5.15 per hour.
What are the economic costs, as you see it, to raising the minimum wage?
If there aren't any, and this is the best way to help the working poor, why
not raise it to $10 per hour? What rationale did you use to come up with
the 90 cent increase?
Surely raising the minimum wage will raise costs for state and local governments and
the private sector.
Do you agree?
Isn't this essentially an unfunded mandate?
In June of 1992, the President said, "We can increase the earned income tax credit by
a couple of billion dollars a year and, far more efficiently than raising the minimum wage, lift
the working poor out of poverty."
Was the President wrong when he made this statement and if not, why has
he proposed this minimum wage increase while at the same time scaling back
the earned income tax credit?
You've stated that you believe that raising the minimum wage is the best way to help
the working poor. CBO staff economists, however, have shown that 85% of minimum wage
workers are not poor but are teenagers in middle income families.
Aren't the President's efforts misguided in this area?
Do you agree that the EITC is a better way to increase the paychecks for
families that really need it? Isn't it better than increasing the minimum
wage which is a mandate of business and is questionable in terms of whether
it's helpful to the families that need the income?
Post-It™ brand fax transmittal memo 7671
# of pages /
To Co. Jon Orsgog
From Chris Foota
Co.
Dept. Fax Dept. of Labor
Phone 395-3142
219-4902
Fax 395-6853
TOTAL P.001
MINIMUM WAGE QUESTIONS
Q:
What are the economic costs, as you see it, to raising the minimum wage?
Some people have been spreading a faulty syllogism. That raising the minimum wage causes job loss, and
therefore, the minimum wage should not be raised. First of all, this is faulty because in the best
research, modest increases in the minimum wage have not been found to be associated with job loss. And,
even if there was some job loss, it almost certainly the case that raising the minimum wage raises the
total income going to low-wage workers. In other words, virtually every study has found that the amount
by earnings go up for people who keep their jobs exceeds the amount by which it goes down for anyone
who might incur unemployment. Moreover, when the unemployed find new jobs, they are better paying
jobs.
Q:
If there aren't any, and this is the best way to help the working poor, why not raise it to $10
per hour? What rationale did you use to come up with the 90 cent increase?
In the last five years, a majority of the studies on the minimum wage in peer-reviewed journals have
found that a noderate increase in the minimum wage would not lead to job loss. A rise in the minimum
wage to $10 per hour is not a moderate increase, and therefore, it would most likely be associated with
job loss. The Administration choose a 90-cent increase because increases of similiar magnitude have
not led to unemployment.
Q:
Raising the minimum wage will raise cost for state and local governments and the private sector.
Do you agree? Isn't this essentially an unfunded mandate?
Given that the real value of the minimum wage has eroded so much over the last 15 years it is now much
less of a mandate on businesses and the public sector than it used to be, even with the proposed
increase.
Q:
Was the President wrong when he made this statement and if not, why has he proposed this minimum
wage increase while at the same time scaling back the earned income tax credit?
First of all, the President is not scaling back the Earned Income Tax Credit (EITC).
The EITC was expanded in 1993 as a way for low and moderate income families to make ends meet, and it
has been very successful. But expanding the EITC is not enough. In order to ensure that there is a
strong incentive for work over welfare, there needs to be a multi-tiered strategy. The EITC fulfilled
its part of the plan. The EITC imposes a steep marginal tax rate on some workers; the minimum wage make
each hour of work pay more. The EITC provides lump-sum benefits to recipients at the end of the year,
not on a paycheck to paycheck basis the way most low-income families need help. Moreover, further
expansions would drain the Treasury, and increase the work disincentives associated with the phase-out
range. The minimum wage complements the EITC.
ä
Aren't the President's efforts misguided in this area?
The minimum wage is perfectly targeted for low-wage workers. However, wage and family income
are not the same thing, but minimum wage workers are disproportionately poor. Fully 47 percent of
workers who would be affected by the President's proposal have family earnings in the bottom 20 percent
of all working families; families that earn less than $360 per week. The average worker who would be
affected by the President's proposal brings home half of his or her family's earnings; 38 percent of
those affected are the sole breadwinner in their family. An increase in the minimum wage of 90 cents
would mean a $1,800 raise for a full-time, year-round minimum-wage worker. This is not an
insignificant sum for low-income families struggling to make ends meet on the minimum wage. Indeed,
it is as much as the average family spends on groceries in seven months.
Moreover, 64% of minimum wage workers are adults age 20 or over. In fact, only one in 14
workers affected by the proposed minimum wage increase is a teenage student from a family with above-
average earnings.
01/25/95
12:27
BLS/OPUBSS
617 362 4230
NO. 773
002
News
United States
Department
of Labor
Bureau of Labor Statistics
Washington, D.C. 20212
Technical information: (202) 606-6900
USDL-94-546
Media contact:
606-5902
FOR RELEASE: 10:00 A.M. EST
Montlay, Nov. 7, 1994
CONSUMER EXPENDITURES IN 1993
Average annual expenditures per consumer unit continued to rise at a moderate
rate, increasing about 3 percent from 1992 to 1993, according to results from the
Consumer Expenditure Survey released by the Bureau of Labor Statistics, U.S.
Department of Labor. Expenditures had risen about 1 percent in 1992 and 4 percent in
1991. The increase in expenditures from 1992 to 1993 matched the increase in general
price levels, as measured by the Consumer Price Index (CPI).
The percent changes in expenditures from 1992 to 1993 varied among the major
components of spending. The largest increases were for health care and entertainment
which rose by 9 percent and 8 percent, respectively. Food expenditures rose 3 percent,
and housing rose 2 percent. Expenditures on apparel and services declined by 2
percent over the period. Consumer Expenditure Survey data for 1991, 1992, and 1993
are shown below.
Annual expenditures of all consumer units and percent changes, Consumer Expenditure Survey, 1991-93
Percent change
Item
1991
1992
1993
1991-92 1992-93
Number of consumer units
97,918
100,019
100,049
Income before taxes 1
$33,901
$33,854
$34,868
Average age of reference person
47.5
47.6
47.8
Average number in consumer unit:
Persons
2.6
2.5
2.5
Earners
1.4
1.3
1.3
Vehicles
2.0
1.9
1.9
Percent homeowner
63
61
63
Average annual expenditures
$29,614
$29,846
$30,692
0.8
2.8
Food
4,271
4,273
4,399
0
2.9
Food at home
2,651
2,643
2,735
-.3
3.5
Food away from home
1,620
1,631
1,664
.7
2.0
Housing
9,252
9,477
9,636
2.4
1.7
Apparel and services
1,735
1,710
1,676
-1.4
-2.0
Transportation
5,151
5,238
5,453
1.5
4.3
Health care
1,554
1,634
1,776
5.1
8.7
Entertainment
1,472
1,500
1,626
1.9
8.4
Personal insurance and pensions
2,787
2,750
2,908
-1.3
5.7
Other expenditures
3,392
3,274
3,218
-3.5
-1.7
1
Income values are derived from "complete income reporters" only.
CONSUMER PRICE INDEX CHANGES, SELECTED GOODS AND SERVICES
December 1991-December 1994
Expenditure Category
Percent Change in Consumer
Price Index (CPI-U)
All items
8.6
Food and Beverages
7.2
Rent
9.1
Transportation Services
11.3
Medical Care Services
19.4
White Bread
14.2
Cereal
11.4
Rice, Pasta, Cornmeal
10.5
Prescription Drugs
12.8
Auto Insurance
15.7
Newspapers
14.0
School Books and Supplies
12.3
Day Care, Nursery School
15.0
Characteristics of minimum wage workers: 1994
BLS data on minimum wage earners are derived from the Current Population Survey (CPS), a nationwide
sample survey of households which includes questions that enable the identification of hourly-paid workers and their
hourly wage rate. According to survey estimates for 1994, some 66.5 million American workers were paid at hourly
rates, representing 61.6 percent of all wage and salary workers.' Of those paid by the hour, about 2.1 million were
reported earning exactly $4.25, the prevailing Federal minimum wage, and another 2 million were reported with wages
below the minimum. Together, these 4.1 million workers with wages at or below the minimum made up 6.2 percent of all
hourly paid workers.² The attached tables present unpublished data on a wide array of demographic and socioeconomic
characteristics for low-wage workers. The following are some highlights from the 1994 data.
- Minimum wage workers tend to be young. Slightly over half of workers earning $4.25 or less are under 25, and
almost one-third are teenagers (that is, age 16-19). Among teenagers paid hourly rates, about 14 percent earned
$4.25 and another 10 percent were reported as being paid less. Of all workers age 25 and over, 4 percent earned the
minimum wage or less. However, among those age 65 and over, the proportion was about 11 percent. (Tables 1 and
6.)
- About 8 percent of women paid hourly rates reported wages at or below the prevalling Federal minimum, compared
to about 5 percent of men. This ratio generally held for full-time workers. Among part-time workers, however, who are
much more likely than full-time workers to earn the mínimum wage or less, men were slightly more likely than women
to be low-wage workers. Overall, part-time workers were five times as likely as their full-time counterparts to be paid
$4.25 or less (16 versus 3 percent). (Table 1.)
- The proportion of hourly-paid workers receiving $4.25 or less was about 6 percent for whites, 7 percent for blacks,
and 9 percent for Hispanics. For each group, women were more likely than men to be low-wage earners. (Table 1.)
Of the four broad geographic census regions, the Northeast had the lowest proportion of hourly workers with
rnings at or below $4.25 (about 5 percent), white the South had the highest (about 8 percent). (Table 2.)
-
By major occupational group, the proportion of hourly-paid workers whose earnings were reported at-or below $4.25
ranged from a low of 1 percent for persons employed in precision production, craft, and repair positions, to a high of 18
percent for those in service jobs. Slightly over half of all low-wage workers in 1994 were in service-type occupations.
(Table 3.)
- Among major industry groups, the proportion of workers with reported hourly wages at or below $4.25 was highest in
retail trade (16 percent). agriculture (11 percent), and services (6 percent). Just over half of all low-wage workers were
employed in retail trade, and another one-fourth worked in services. It should be recognized that for many working in
these Industries, tips and commissions may supplement the hourly wages received. (Table 4.)
- The likelihood of a worker being paid the minimum wage or less is inversely related to the level of education attained.
Among hourly paid workers age 16 and over, 5 percent of those who had a high school diploma but had not gone on to
college earned the minimum or less, roughly twice the proportion for those who had obtained a college degree. (Table
5.)
Source: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population
Survey, 1994 annual averages. For more information about the data in this table package, call (202) 606-6378.
1 Data are for wage and salary workers, excluding the incorporated self-employed, and refer to earnings on a person's main job. Data for 1994 are not
directly comparable with data for 1993 and earlier years due 10 the redesign of the Current Population Survey and the introduction of 1990 census-based
population controls (adjusted for the estimated census population undercount). For further Information, see "Revisions in the Current Population Survey
Effective January 1994,* in the February 1994 issue of Employment and Earnings.
2
It should be noted that the presence of a sizable number of workers with wages below the minimum does not necessarily indicate violations of the Fair
abor Standards Act, as there are exemptions to the minimum wage provisions of the law. Moreover, an apparent Increase in the estimated number of
orkers earning less than the minimum in 1994 likely reflects a number of factors associated with the new CPS, and does not necessarily Indicate an
increase in the ranks of the below-minlmum group. These factors include certain technical features of CPS interviewing and processing practices in 1994.
the introduction of the 1990 census-based population controls, as well as changes in the questionnaire and in survey methodology. The estimates of the
numbers of minimum and subminlmum wage workers presented in the accompanying tables pertain to workers paid at nourly rates, salaried and other
non-hourly workers are excluded. As such. the actual number of workers with earnings at or below the prevailing minimum Is undoubtedly understated.
Research has shown 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. However, these workers are not Included in the attached tables because of data concerns that arise
in n/erisalv estimating their number. For further information, see Steven Haugen and Earl Mellor, "Estimating the number of minimum wage workers,"
200
ES6 "ON
2221
219
202
-
BLS/OPUBSS
08:28
03/10/95
Table 1. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal
minimum wage by selected characteristics, 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourly rates
Total
At or below $4,25
Total
AI or below $4.26
At or below $4.25
Characteristic
paid
paid
hourly
Total
AI
Below
hourly
Total
AI
Below
Total
AI
Below
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
rates
SEX AND AGE
Total, 16 years and over
68,549
4,127
2,132
1,995
100.0
100.0
100.0
100.0
6.2
3.2
3.0
16 to 24 years
15.258
2,217
1271
946
229
53.7
59.6
47.4
14.5
8.3
6.2
5,493
1.295
767
528
8.3
31.4
36.0
26.5
23.6
14.0
9.6
16 to 19 years
25 years and over
51,291
1,911
861
1,050
77.1
46.3
40.4
52.6
3.7
1.7
20
33,528
1,565
891
674
50.4
37.9
41.8
33.8
4.7
2.7
2.0
Men, 16 years and over
16 to 24 years
7,939
955
617
338
11.9
23.1
28.9
16.9
12.0
7.8
4.3
16 to 19 years
2,773
583
380
203
42
14.1
17.8
10.2
21.0
13.7
7.3
25 years and over
25.589
610
274
336
38.5
14.8
12.9
16.8
2.4
1.1
1.3
Women, 16 years and over
33,021
2,563
1,241
1,322
49.6
62.1
58.2
66.3
7.8
3.8
4.0
16 to 24 years
7,319
1,262
654
608
11.0
30.6
30.7
30.6
17.2
8.9
8.3
2,720
712
387
325
4.1
17.3
182
16.3
26.2
14.2
11.9
16 to 18 years
25 years and over
25,702
1,301
587
714
38.6
31.5
27.5
35.8
5.1
2.3
2.8
RACE HISPANIC ORIGIN,
AND SEX
White
55,151
3,384
1,657
1,727
82.9
82.0
77.7
86.6
6.1
3.0
3.1
Men
27,956
1,273
696
577
42.0
30.8
32.6
28.9
4.6
2.5
2.1
Women
27,196
2,111
961
1,150
40.9
51.2
45.1
57.6
7.8
3.5
4.2
Black
8,586
561
356
205
12.9
13.6
16.7
10.3
6.5
4.1
2.4
5.2
6.4
3.9
5.2
3.3
1.9
Men
4,116
214
138
78
6.2
Women
4,471
347
220
127
6.7
8.4
10.3
6.4
7.8
4.9
2.8
Hispanic origin
7,130
612
401
211
10.7
14.8
18.8
10.6
8.6
5.6
3.0
Mon
4,308
315
220
95
6.5
7.6
10.3
4.8
7.3
5.1
22
8.5
5.8
10.5
6.4
4.1
Women
2,822
297
181
116
4.2
72
FULL- AND PART-TIME
STATUS AND SEX
Full-time workers
49,682
1,519
734
785
74.7
36.8
34.4
39.3
3.1
1.5
1.8
Men
28,224
674
342
332
42.4
16.3
16.0
16.6
2.4
12
1.2
Women
21,458
845
392
453
32.2
20.5
18.4
22.7
3.9
1.8
2.1
8.3
72
Part-time workers
16,773
2,602
1.385
1,207
25.2
63.0
65.4
60.5
15.5
Men
5,251
889
548
341
7.9
21.5
25.7
17.1
16.9
10.4
6.5
Women
11,522
1,713
847
866
17.3
41.5
39.7
43.4
14.9
7.4
7.5
NOTE: Data exclude the incorporated sell-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. Data for 1994 are not directly comparable
with data for 1993 and earlier years due to the redesign of the Current Population Survey and the introduction of 1990 census-based population controls.
Also note that the distinction between full- and part-time workers is based on hours usually worked. In 1994. 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, 1994 annual averages.
500
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2:32
56/01/20
2. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal
um wage by census region and division and 11 large States, 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourly rates
Total
At or below $4.25,
Total
At or below $4.25
At or below $4.25
Region, division, States
paid
paid
hourly
Total
At
Below
hourly
Total
z
Below
Total
AI
Below
rates
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
Total 16 years and over
66.549
4,127
2,132
1.995
100.0
100.0
100.0
100.0
62
3.2
3.0
Northeast
12,111
580
242
338
18.2
14.1
11.4
16.9
4.8
2.0
2.8
New England
3,390
138
43
95
5.1
3.3
2.0
4.8
4.1
1.3
2.8
Middle Adantic
8,721
442
199
243
13.1
10.7
9.3
12.2
5.1
2.3
2.8
Midwest
17.784
1.046
464
582
26.7
25.3
21.8
28.2
5.9
2.6
3.3
East North Central
14,779
837
358
479
22.2
20.3
16.8
24.0
5.7
2.4
32
West North Central
2,985
210
106
104
4.5
5.1
5.0
5.2
7.0
3.6
3.5
South
22,559
1,686
909
777
33.9
40.9
42.6
38.9
7.5
4.0
3.4
South Attantic
7,879
516
254
261
11.8
12.5
11.9
13.1
6.5
3.2
3.3
East South Central
3,782
185
84
101
5.7
4.5
3.9
5.1
4.9
2.2
2.7
West South Central
10,899
986
571
415
16.4
23.9
26.8
20.8
9.0
5.2
3.8
West
14,115
815
517
298
21.2
19.7
24.2
14.9
5.8
3.7
21
Mountain
4.074
276
142
134
6.1
6.7
6.7
6.7
6.8
3.5
3.3
Pacific
10,040
539
375
164
15.1
13.1
17.6
8.2
5.4
3.7
1.6
California
7,344
491
362
129
11.0
11.9
17.0
6.5
6.7
4.9
1.8
New York
3,759
206
99
107
5.6
5.0
4.6
5.4
6.5
2.6
2.8
Texas
4,405
410
22$
185
6.6
9.9
10.6
9.3
9.3
5.1
42
yivania
3,202
182
&
94
4.8
4.4
4.1
4.7
5.7
2.7
2.9
3,187
190
70
120
4.8
4.6
3.3
6.0
5.0
2.2
3.8
3,168
211
101
110
4.8
5.1
4.7
5.5
6.7
3.2
3.5
Florida
3,310
227
98
129
5.0
5.5
4.6
6.5
6.9
3.0
3.9
Michigan
2,738
171
71
100
4.1
4.1
3.3
5.0
6.2
2.6
3.7
New Jersey
1,759
55
12
43
2.6
1.3
0.6
2.2
3.1
0.7
2.4
North Carolina
1,870
103
54
49
2.8
2.5
2.5
2.5
5.5
2.9
2.6
Massachusetts
1,551
63
18
45
2.3
1.5
0.8
2.3
4.1
12
2.9
NOTE: The four major regions and nine census divisions of the United States are as follows:
Northeast
New England: Connecticut, Maine. Massachusetts, New Hampshire. Rhode Island, and Vermont
Middle Adentic: New Jersey. New York, and Pennsylvania
Midwest (formerly North Central):
East North Central: Illinois, Indiana, Michigan, Ohio, and Wisconsin
West North Central: lowa. Kansas. Minnesota, Missouri, Nebraska, North Dakota, and South Dakota
South:
South Atlantic: Delaware, District of Columbia. Florida. Georgia. Maryland, North
Carolina. South Carolina, Virginia, and West Virginia
East South Central: Alabama, Kentucky, Mississippi, and Tennessee
West South Central: Arkansas, Louisiana. Oklahoma. and Texas
West:
Mountain: Arizona, Colorado. Idaho, Montana. Nevada. New Mexico, Utah, and Wyoming
Pacific: Alaska, Callfornia, Hawaii, Oregon, and Washington
NOTE: Data exclude the incorporated self-employed. Data for 1994 are not directly comparable with data for 1993 and earlier years due to the redesign of the Current
Population Survey and the introduction of 1990 census-based population controls.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population Survey, 1994 annual averages.
DOC
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Table 3. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal
minimum wage by major occupation group, 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourly rates
Total
AI or below $4,25
Total
At or below $4.25
At or below $4.25
Occupation
paid
paid
hourly
Total
At
Below
hourly
Total
At
Below
Total
At
Below
rates
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
Total, 16 years and over
66,549
4,127
2,132
1,995
100.0
100.0
100.0
100.0
6.2
3.2
3.0
Managerial and professional
specialty
8,500
137
69
68
12.8
3.3
32
3.4
1.6
0.8
0.8
Executive, administrative. and
managerial
3.504
43
17
26
5.3
1.0
0.8
1.3
1.2
0.5
0.7
Professional specialty
4,996
94
52
42
7.6
2.3
2.4
2.1
1.9
1.0
0.8
Technical, sales. and
administrative support
21,179
900
610
290
31.8
21.8
28.6
14.5
4.2
2.9
1.4
Technicians and related support
2,465
34
18
16
3.7
0.8
0.8
0.8
1.4
0.7
0.6
Sales occupations
6.660
581
409
172
10.0
14.1
19.2
8.6
8.7
6.1
2.8
Administrative support. including
clerical
12,054
285
183
102
18.1
6.9
8.6
5.1
2.4
1.5
0.8
Service occupations
12,311
2,250
946
1,305
18.5
54.5
44.3
65.4
18.3
7.7
10.6
Private household
389
95
17
78
0.5
2.3
0.8
3.9
24.4
4.4
20.1
Protective service
1,418
50
34
16
2.1
1.2
1.6
0.8
3:5
2.4
,
Service. except private household
and protective
10,504
2,105
893
1,212
15.8
51.0
41.9
60.8
20.0
8.5
11.
Food service workers
5,163
1,577
570
1,007
7.8
38.2
26.7
50.5
30.5
11.0
19.5
Health service workers
1.827
118
69
49
2.7
2.9
32
2.5
6.5
3.8
2.7
Cleaning & building service workers
2.269
184
116
68
3.4
4.5
5.4
3.4
8.1
5.1
3.0
Personal service workers
1,246
226
138
88
1.9
5.5
6.5
4.4
18.1
11.1
7.1
Precision production, craft. and repair
8,894
96
48
48
13.4
2.3
2.3
2.4
1.1
0.5
0.5
Mechanics and repairers
2,990
33
15
18
4.5
0.8
0.7
0.9
1.1
0.5
0.6
Construction trades
3,060
27
10
17
4.6
0.7
0.5
0.9
0.9
0.3
0.6
Other precision. production. craft.
and repair
2,843
35
22
13
4.3
0.8
1.0
0.7
1.2
0.8
0.5
Operators, fabricators. and laborers
14,469
614
396
218
21.7
14.9
18.6
10.9
42
2.7
1.5
Machine operators, assemblers,
and inspectors
6,742
237
143
94
10.1
5.7
6.7
4.7
3.5
2.1
1.4
Transportation and material moving
3,281
91
60
31
4.9
2.2
2.8
1.6
2.8
1.8
0.9
Handlers, equipment cleaners,
helpers. and laborers
4,446
286
193
93
6.7
6.9
9.1
4.7
6.4
4.3
2.1
Farming, forestry. and fishing
1,196
132
66
66
1.8
3.2
3.1
3.3
11.0
5.5
5.5
NOTE: Data exclude the incorporated self-employed. Data for 1994 are not directly comparable with data for 1993 and earlier years due to the redesign of the Current
Population Survey and the introduction of 1990 census-based population controls.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population Survey, 1994 annual averages.
500
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Table 4. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal
minimum wage, by major Industry group, 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourly rates
Total
At or below $4.25
Total
At or below $4.25
At or below $4.25
Industry
peid
paid
hourly
Total
AI
Below
hourly
Total
A1
Below
Total
At
Below
rates
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
Total. 16 years and over
66,549
4,127
2,132
1,995
100.0
100.0
100.0
100.0
6.2
3.2
3.0
Private sector
57,927
3,847
1,963
1,894
87.0
93.2
91.6
94.9
6.6
2.4
3.3
Goods-producing industries
18,295
435
246
189
27.5
10.5
11.5
9.5
2.4
1.3
1.0
Agriculture
924
89
31
48
1.4
2.4
2.4
2.4
10.7
5.5
5.2
Mining
367
3
2
1
0.6
0.1
0.1
0.1
0.8
0.5
0.3
Construction
3.747
49
19
30
5.8
12
0.9
1.5
1.3
0.5
0.8
Manufacturing
13,256
283
173
110
19.9
6.9
8.1
5.5
2.1
1.3
0.8
Durable goods
7,809
99
47
52
11.7
2.4
2.2
2.6
1.3
0.6
0.7
Nondurable goods
5,448
184
126
58
8.2
4.5
5.9
2.9
3.4
2.3
1.1
Service-producing
ustries
39,632
3.412
1,707
1,705
59.6
82.7
80.1
85.5
8.6
4.3
4.3
bortation and public utilities
3,743
58
32
26
5.6
1.4
1.5
1.3
1.5
0.9
0.7
clessie trade
2.035
67
42
25
3.1
1.6
2.0
1.3
3.3
2.1
12
Retail trade
14,249
2,255
1,075
1,180
21.4
54.6
50.4
59.1
15.8
7.5
8.3
Finance, Insurance. and real estate
2,620
44
20
24
3.9
1.1
0.9
1.2
1.7
0.8
0.9
Services
16,986
969
538
451
25.5
24.0
25.2
22.6
5.8
3.2
2.7
Private households
478
105
21
84
0.7
2.5
1.0
42
22.0
4.4
17.6
Other services
16,508
883
517
366
24,8
21.4
242
18.3
5.3
3.1
22
Business. auto, and repair services
3.505
145
98
47
5.3
3.5
4.6
2.4
4.1
2.8
13
Personal services
1,693
178
94
84
2.5
4.3
4.4
42
10.5
5.6
S.O
Entertainment and recreation
1,044
136
91
45
1.6
3.3
4.3
2.3
13.0
8.7
4.3
Professional services
10,247
417
231
188
15.4
10.1
10.8
9.3
4.1
2.3
1.8
Forestry and fisheries
20
7
3
4
0.0
0.2
0.1
0.2
(1)
(1)
(1)
Public sector
8,623
281
180
101
13.0
6.8
8.4
5.1
3.3
2.1
12
Federal
2,104
31
22
9
3.2
0.8
1.0
0.5
1.5
1.0
0.4
State
2.095
101
68
33
3.1
2.4
32
1.7
4.8
3.2
1.6
Local
4.424
148
89
59
6.6
3.6
4.2
3.0
3.3
2.0
1.3
1 Percent not shown where base is less than 50,000.
NOTE: Data exclude the incorporated self-employed. Data for 1994 are not directly comparable with data for 1993 and earlier years due to the redesign 5
Population Survey and the Introduction of 1990 census-based population controls.
SOURCE: U.S. Department of Labor, Bureeu of Labor Statistics. unpublished tabulations from the Current Population Survey. 1994 annual averages.
900
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52:30
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Table 5. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing minimum wage
by educational attainment, 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourly rates
Total
At or below $4.25
Total
As or below $4.25
At or below $4.25
Years of school
completed
paid
paid
hourly
Total
At
Below
hourly
Total
AI
Below
Total
AI
Below
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
rates
Total. 16 years and over
4.127
2,132
1,995
100.0
100.0
100.0
100.0
8.2
32
3.0
66,549
11,575
1,633
971
662
17.4
39.6
45.5
33.2
14.1
8.4
5.7
Less than a high school diploma
2,962
323
193
130
4.5
7.8
9.1
6.5
10.9
6.5
4.4
Less than 1 year of high school
7,590
1,199
718
481
11.4
29.1
33.7
24.1
15.8
9.5
6.3
, to 3 years of high school
4 years of high school. no diploms
1,022
112
61
51
1.5
2.7
2.9
2.6
11.0
6.0
5.0
2.494
1,161
1,333
82.6
60.4
54.5
68.8
4.5
2.1
2.4
High school graduates or more
54,975
26,464
1,269
609
660
39.8
30.7
28.6
33.1
4.8
2.3
2.5
High school graduates. no college
15,339
905
431
474
23.0
21.9
20.2
23.8
5.9
2.8
3.1
Some college. no degree
5,658
147
65
82
8.5
3.6
3.0
4.1
2.6
1.1
1.4
Associate degree
Occupational program
3,183
73
33
40
4.8
1.8
1.5
2.0
2.3
1.0
1.3
2.472
74
32
42
3.7
1.8
1.5
2.1
3.0
1.3
1.7
Academic program
174
58
118
11.3
4.2
2.6
5.9
2.3
0.7
1.6
College graduates, total
7,516
6,160
152
50
102
9.3
3.7
2.3
5.1
2.5
0.8
1.7
Bachelor's degree
1,100
13
4
9
1.7
0.3
0.2
0.5
12
0.4
0.8
Master's degree
Professional degree
169
5
1
4
0.3
0.1
0.0
0.2
3.0
0.6
2.4
67
4
1
3
0.1
0.1
0.0
0.2
4.6
1.1
3.4
Doctoral degree
NOTE: Data exclude the incorporated self-employed. Data for 1994 are not directly comparable with data for 1993 and earlier years due 9 the redesign of the Current
Population Survey and the introduction of 1990 census-based population controls.
SOURCE: U.S. Department of Labor. Bureau of Labor Statistics, unpublished tabulations from the Current Population Survey. 1994 annual averages.
200
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Table 7. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal
minimum wage by sex, marital status, and age, 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourly rates
Total
AI or below $4.25
Total
AI or below $4.25
At or below $4.25
Sex, markal status, and age
paid
paid
hourly
Total
At
Below
hourly
Total
AI
Below
Total
AI
Below
rates
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
Total, 16 years and over
66,549
4.127
2,132
1,995
100.0
100.0
100.0
100.0
6.2
32
3.0
Never married
21,385
2,417
1,347
1.070
32.1
58.6
63.2
53.6
11.3
6.3
5.0
16 to 24 years
12.567
1,969
1,139
830
18.9
47.7
53.4
41.6
15.7
9.1
6.6
25 years and over
8,818
448
208
240
133
10.9
9.8
12.0
5.1
2.4
2.7
25 to 54 years
8,529
427
202
225
12.8
10.3
9.5
11.3
5.0
24
2.6
Married, spouse present
34,561
1.134
516
818
51.9
27.5
24.2
31.0
3.3
1.5
1.8
16 to 24 years
2.260
192
102
90
3.4
4.7
4.8
4.5
8.5
4.5
4.0
25 years and over
32,301
943
415
528
48.5
22.8
19.5
26.5
2.9
1.3
1.6
25 to 54 years
28,009
763
340
423
42.1
18.5
15.9
21.2
2.7
1.2
1.5
Other marital status
10,603
577
269
308
15.9
14.0
12.8
15.4
5.4
2.5
2.9
16 to 24 years
431
57
31
26
0.6
1.4
1.5
1.3
13.2
7.2
6.0
25 years and over
10,172
520
238
282
15.3
12.6
11.2
14.1
5.1
2.3
2.8
25 TO 54 years
8,259
382
167
215
12.4
9.3
7.8
10.8
4.6
2.0
2.6
MEN
years and over
33,528
1,565
891
674
50.4
37.9
41.8
33.8
4.7
2.7
2.0
harried
11,790
1,107
672
435
17.7
26.8
31.5
21.8
9.4
5.7
3.7
24 years
6,729
891
574
317
10.1
21.6
26.9
15.9
13.2
8.5
4.7
25 years and over
5.061
216
98
118
7.6
5.2
4.6
5.9
4.3
1.9
2.3
25 to 54 years
4,919
205
96
109
7.4
5.0
4.5
5.5
4.2
2.0
2.2
Married. spouse present
17,823
344
164
180
26.8
8.3
7.7
9.0
1.9
0.9
1.0
1.9
16 to 24 years
1,063
55
35
20
1.6
1.3
1.8
1.0
52
3.3
25 years and over
16,760
289
129
160
25.2
7.0
6.1
8.0
1.7
0.8
1.0
25 to 54 years
14,355
201
96
105
21.6
4.9
4.5
5.3
1.4
0.7
0.7
Other marital staws
3,916
114
55
59
5.9
2.8
2.6
3.0
2.9
1.4
15
16 to 24 years
147
9
8
1
0.2
0.2
0.4
0.1
6.1
5.4
0.7
25 years and over
3.769
105
47
58
5.7
2.5
2.2
2.9
2.8
12
1.5
25 to 54 years
3,307
86
37
49
5.0
2.1
1.7
2.5
2.6
1.1
1.5
WOMEN
Total, 16 years and over
33,021
2,563
1,241
1,322
49.6
62.1
58.2
66.3
7.8
3.8
4,0
Never married
9,598
1,310
675
635
14.4
31.7
31.7
31.8
13.7
7.0
6.6
16 to 24 years
5,839
1,078
566
513
8.8
26.1
26.5
25.7
18.5
9.7
8.8
25 years and over
3,757
233
111
122
5.6
5.6
5.2
6.1
8.2
3.0
3.2
25 to 54 years
3,610
223
106
117
5.4
5.4
5.0
5.9
6.2
2.9
3.2
Married. spouse present
16,738
790
352
438
25.2
19.1
16.5
22.0
4.7
2.1
2.6
16 to 24 years
1,197
137
67
70
1.8
3.3
3.1
3.5
11.4
5.8
5.8
25 years and over
15,542
654
286
368
23.4
15.8
13.4
18.4
4.2
1.8
2.4
25 to 54 years
13,654
561
243
318
20.5
13.6
11.4
15.9
4.1
1.8
2.3
Other marital status
6,687
461
213
248
10.0
11.2
10.0
12.4
6.9
32
3,7
16 to 24 years
284
48
23
25
0.4
12
1.1
1.3
16.9
8.1
8.8
25 years and over
6,403
414
191
223
9.6
10.0
9.0
11.2
8.5
3.0
3.5
25 to 54 years
4,951
295
130
165
7.4
7.1
6.1
8.3
6.0
2.6
3.3
TE: Data exclude the incorporated self-employed. Data for 1994 are not directly comparable with data for 1993 and earlier years due to the redesign of the Current
Population Survey and the introduction of 1990 census-based population controls.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population Survey, 1994 annual averages.
500
ES6 "ON
60fl
7221 219 202
ZSO
2:30
03/10/95
Table 6. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal
minimum wage by sex and detailed age, 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourly rates
Total
At or below $4.25
Total
At or below $4.25
At or below $4.25
Sex and age
paid
paid
hourly
Total
AI
Below
hourly
Total
At
Below
Total
At
Below
rates
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
BOTH SEXES
Total. 18 years and over
66,549
4,127
2,132
1,995
100.0
100.0
100.0
100.0
6.2
3.2
3.0
Under 25 years
15,258
2.217
1,271
946
22.9
53.7
59.6
47.4
14.5
8.3
6.2
16 to 19 years
5,493
1,295
767
528
8.3
31.4
36.0
28.5
23.6
14.0
9.6
20 to 24 years
9,765
922
604
418
14.7
22.3
23.6
21.0
9.4
5.2
4.3
25 years and over
51,291
1,911
861
1,050
77.1
46.3
40.4
52.8
3.7
1.7
2.0
25 to 34 years
18,179
814
374
440
27.3
19.7
17.5
22.1
4.5
2.1
2.4
25 to 29 years
8,896
438
206
230
13.4
10.6
9.7
11.5
4.9
2.3
2.6
30 to 34 years
9.284
378
168
210
14.0
92
7.9
$.5
4.1
1.8
2.3
35 to 44 years
16,260
491
211
280
24.4
11.9
9.9
14.0
3.0
1.3
1.7
35 to 39 years
8.757
266
108
160
13.2
6.4
5.0
8.0
3.0
1.2
1.8
40 to " years
7,503
225
105
120
11.3
5.5
4.9
6.0
3.0
1.4
1.6
45 to 54 years
10,357
266
123
143
15.8
6.4
5.8
7.2
2.6
1.2
1.4
45 to 49 years
6,022
146
73
73
9.0
3.5
3.4
3.7
2.4
12
12
50 to 54 years
4,335
120
50
70
6.5
2.9
2.3
3.5
2.8
1.2
1.8
55 to 64 years
5,026
181
77
104
7.6
4.4
3.6
6.2
3.6
1.5
2.1
55 to 59 years
3,138
90
36
54
4.7
22
1.7
2.7
2.9
1.1
1.7
60 to 64 years
1,890
92
41
51
2.8
2.2
1.9
2.6
4.9
22
2.7
65 years and over
1,467
158
78
82
2.2
3.8
3.6
4.1
10.8
5.2
5.6
65 to 69 years
882
81
41
40
1.3
2.0
1.9
2.0
9.2
4.6
4.5
70 years and over
585
77
36
42
0.9
1.9
1.6
2.1
13.2
6.0
7.2
MEN
Total, 16 years and over
33,528
1,565
891
674
50.4
37.9
41.8
33.8
4.7
2.7
2.0
Under 25 years
7,939
955
617
338
11.9
23.1
28.9
16.9
12.0
7.8
4,3
16 to 19 years
2.773
583
380
203
4.2
14.1
17.8
10.2
21.0
13.7
7.3
20 to 24 years
5,165
372
237
135
7.8
9.0
11.1
6.8
7.2
4.6
2.6
25 years and over
25,589
610
274
336
38.5
14.8
12.9
16.8
2.4
1.1
1.3
25 to 34 years
9,758
280
139
141
14.7
6.8
6.5
7.1
2.9
1.4
1.4
25 to 29 years
4,850
175
87
88
7.3
4.2
4.1
4.4
3.6
1.8
1.8
30 to 34 years
4,908
105
52
53
7.4
2.5
2.4
2.7
2.1
1.1
1.1
35 to 44 years
7.964
144
66
78
12.0
3.5
3.1
3.9
1.8
0.8
1.0
35 B 39 years
4,340
79
39
40
6.5
1.9
1.8
2.0
1.8
0.9
0.9
40 to 44 years
3,624
65
27
38
5.4
1.6
1.3
1.9
1.8
0.7
1.0
45 B 54 years
4,860
68
24
44
7.3
1.8
1.1
22
1.4
0.5
0.9
45 to 49 years
2.830
34
14
20
4.3
0.8
0.7
1.0
1.2
0.5
0.7
50 to 54 years
2,030
32
9
23
3.1
0.8
0.4
1.2
1.6
0.4
1.1
$5 to 64 years
2,348
48
25
23
3.5
1.2
1.2
1.2
2.0
1.1
1.0
56 to 59 years
1,468
23
10
13
2.2
0.6
0.5
0.7
1.6
0.7
0.9
60 to 64 years
880
24
15
9
1.3
0.8
0.7
0.5
2.7
1.7
1.0
65 years and over
661
71
21
50
1.0
1.7
1.0
2.5
10.7
3.2
7.6
65 to 69 years
385
35
13
22
0.6
0.8
0.6
1.1
9.1
3.4
5.7
70 years and over
278
34
7
27
0,4
0.8
0.3
1.4
12.3
2.5
9.8
WOMEN
Total, 18 years and over
33,021
2,563
1,241
1,322
49.6
62.1
58.2
68.3
7.8
3.8
4.0
Under 25 years
7,319
1,262
664
608
11.0
30.6
30.7
30.5
17.2
8.9
8.3
16 to 19 years
2.720
712
387
325
4.1
17.3
18.2
16.3
26.2
14.2
11.9
20 to 24 years
4,599
550
267
283
6.9
13.3
12.5
14.2
12.0
5.8
6.2
25 years and over
25,702
1,301
587
714
38.6
31.5
27.5
35.8
5.1
2.3
2.8
25 to 34 years
8,422
534
235
299
12.7
12.8
11.0
15.0
6.3
2.8
3.6
25 to 29 years
4,045
261
119
142
6.1
6.3
5.6
7.1
6.5
2.9
3.5
30 to 34 years
4.377
273
116
157
6.6
6.6
5.4
7.9
6.2
2.7
3.6
35 to 44 years
8,296
347
145
202
12.5
8.4
6.8
10.1
4.2
1.7
2.4
35 to 39 years
4,417
166
66
120
6.6
4.5
3.1
6.0
4.2
1.5
2.7
40 to 44 years
3,879
161
79
82
5.8
3.9
3.7
4.1
4.2
2.0
2.1
45 to 54 years
5.497
199
100
99
8.3
4.8
4.7
5.0
3.6
1.8
1.8
45 to 49 years
3,192
111
59
52
4.8
2.7
2.8
2.6
3.5
1.8
1.6
50 to 54 years
2,305
88
41
47
3.5
2.1
1.9
2.4
3.8
1.8
2.0
55 to 64 years
2,680
134
52.
82
4.0
3.2
2.4
4.1
5.0
1.9
3.1
55 to 59 years
1,670
67
26
41
2.5
1.6
1.2
2.1
4.0
1.6
2.5
60 to 84 years
1,010
68
27
41
1.5
1.6
1.3
2.1
6.7
2.7
4.1
65 years and over
806
87
55
32
1.2
2.1
2.6
1.6
10.8
6.8
4.0
65 to 69 years
497
44
27
17
0.7
1.1
1.3
0.9
8.9
5.4
3.4
70 years and over
309
43
28
15
0.5
1.0
1.3
0.8
13.9
9.1
4,9
NOTE: Data exclude the Incorporated self-employed. Date for 1994 are not directly comparable with data for 1993 and earlier years due to the redesign of the Current
Population Survey and the introduction of 1990 census-based population controls.
of Labor. Bureau of Labor Statistics, unpublished tabulations from the Current Population Survey. 1994 annual averages.
800
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92:30
03/10/95
Table 8. Employed wage and salary workers paid hourly rates with earnings at or below the prevailing Federal
minimum wage by hours usually worked per week. 1994 annual averages
Number of workers
Percent distribution
Percent of all workers
(in thousands)
paid hourty rates
Total
At or below $4.25
Total
At or below $4.25
At or below $4.25
Hours usually worked
paid
paid
hourly
Total
At
Below
hourly
Total
AI
Below
Total
At
Below
rates
$4.25
$4.25
rates
$4.25
$4.25
$4.25
$4.25
3.2
Total, 16 years and over
66,549
4,127
2.132
1,995
100.0
100.0
100.0
100.0
6.2
3.0
Hours vary
3,849
501
243
258
5.8
12.1
11.4
12.9
13.0
6.3
6.7
0 to 34 hours
15,036
2,263
1,235
1,028
22.6
54.8
57.9
51.5
15.1
82
6.8
0 to 4 hours
310
57
21
36
0.5
1.4
1.0
1.8
18.4
6.8
11.6
5 to 3 hours
810
150
78
72
12
3.6
3.7
3.6
18.5
9.6
8.9
1,444
304
188
116
2.2
7.4
8.8
5.8
21.1
13.0
8.0
10 to 14 hours
2.245
394
235
159
3.4
9.5
11.0
8.0
17.B
10.5
7.1
15 to 19 hours
4,566
614
355
259
6.9
14.9
16.7
13.0
13.4
7.8
5.7
20 to 24 hours
25 to 29 hours
2.015
302
156
148
3.0
7,3
7.3
7.3
15.0
7.7
7.2
30 to 34 hours
3,645
442
203
239
5.5
10.7
9.5
12.0
12.1
5.5
6.6
35 hours or more
47,665
1,364
655
709
71.6
33.1
30.7
35.5
2.9
1.4
1.5
162
180
72
8.3
7.6
9.0
7.2
3.4
3.8
35 10 39 hours
4,778
342
42,887
1,022
493
529
64.4
24.8
23.1
28.5
2.4
1.1
1.2
40 hours or more
40 hours
35,696
881
442
419
53.6
20.9
20.7
21.0
2.4
1.2
12
41 hours or more
7,191
161
51
110
10.8
3.9
2.4
5.5
22
0.7
1.5
to 44 hours
1,019
18
10
8
1.5
0.4
0.5
0.4
1.8
1.0
0.8
48 hours
2,792
54
19
35
4.2
1.3
0.9
1.8
1.9
0.7
1.3
59 hours
2.479
62
16
46
3.7
1.5
0.8
2.3
2.5
0.6
1.9
60 hours or more
901
26
6
22
1.4
0.7
0.3
1.1
3.1
0.7
2.4
NOTE: Date exclude the incorporated self-employed. Data for 1994 are not directly comparable with data for 1993 and earlier years due to the redesign of the Current
Population Survey and the Introduction of 1990 census-based population controls.
SOURCE: U.S. Department of Labor, Buresu of Labor Statistics, unpublished
tabulations from the Current Population Survey. 1994 annual averages.
010
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2:30
56/01/99
Table 9. Workers paid hourly rates and minimum wage workers, by sex, 1979-1994
(Numbers in thousands)
Workers paid hourly rates
Total
Percent
Paid less
Paid
Total paid the prevailing
wage and
of wage
than the
the
minimum wage or less
Year
salary
Total
and
prevailing
prevailing
Percent of
workers
salary
minimum
minimum
Number
hourly paid
workers
wage
wage
workers
Both sexes
1979
85,773
50,637
59.0
2,846
3,907
6,753
13.3
1980
85,780
50,210
58.5
3,017
4,581
7,598
15.1
1981 (end 1970 weights)
86,651
50,770
58.6
3,440
4,201
7,641
15.1
1981 (begin 1980 weights)
88,516
51.869
58.6
3,513
4.311
7,824
15.1
1982
87,368
50,846
58.2
2,348
4,148
8,496
12.8
1983
88,290
51.820
58.7
2.077
4,261
6,338
12.2
1984
92,194
54,143
58.7
1,838
4,125
5,963
11.0
1985
94,521
55,782
59.0
1,639
3,899
5,538
9.3
1988
96,903
57,529
59.4
1,599
3,461
5,060
8.8
1987
99,303
59,552
60.0
1,468
3,229
4,697
7.9
1988
101,407
60,878
60.0
1,319
2,608
3,927
8.5
1989
103.480
62.389
60.3
1,372
1,790
3,162
5.1
1990 (Q2 1990 Q1 1991)
103,587
62,112
60.0
2,221
968
3,189
5.1
1991 (Q2 1991 - Q1 1992)
102,872
61,782
60.1
2,351
3,365
5,716
9.3
1992
103,688
62.683
60.5
1,896
2,866
4,762
7.6
1993
105,068
63.316
60.3
1,668
2.518
4,188
6.6
1994 (begin new CPS)
107,989
66,549
61.6
1,995
2,132
4,127
6.2
Men
1979
48,389
27,771
57.4
820
1.318
2.138
7.7
1980
47,641
27,075
56.8
957
1,654
2,611
9.6
1981 (end 1970 weights)
47,769
26,936
56.4
1,090
1,489
2,579
9.6
1981 (begin 1980 weights)
48,844
27,576
56.5
1,119
1,533
2,652
9.6
1982
47,591
26,481
55.8
697
1,587
2,284
8.6
1983
47,856
26,831
56.1
565
1,858
2,243
8.4
1984
50,022
28,140
56.3
490
1,626
2.116
7.5
1985
51,015
28,893
56.6
440
1,544
1,984
6.9
1986
51,942
29,666
57.1
408
1,338
1,744
5.9
1987
52,938
30,474
57.6
364
1,283
1,647
5.4
1988
53.912
31,058
57.6
311
1,066
1,377
4.4
1989
54,789
31,687
57.8
379
733
1,112
3.5
1990 (Q2 1990 Q1 1991)
54,573
31,355
57.5
732
318
1,050
3.3
1991 (02 1991 - Q1 1992)
53,879
31,010
57.6
781
1,301
2.082
6.7
1992
$4,135
31,510
58.2
628
1.164
1,792
5.7
1993
54,776
31,699
57.9
651
1,032
1,583
5.0
1994 (begin new CPS)
56,570
33,528
59.3
674
891
1,565
4.7
Women
1979
37,384
22,868
61.2
2,026
2.589
4,615
20.2
1980
38,140
23,135
60.7
2,060
2,927
4.987
21.6
1981 (end 1970-weights)
38,882
23,834
61.3
2,350
2.711
5.061
21.2
1981 (begin 1980 weights)
39,672
24,294
61.2
2,394
2,778
5,172
21.3
1982
39,777
24,365
61.3
1,651
2.561
4,212
17.3
1983
40,433
24,989
61.8
1,492
2,603
4,095
16.4
1984
42,172
26,003
61.7
1,348
2,499
3,847
14.8
1985
43.506
26,869
61.8
1,198
2,356
3,554
13.2
1986
44,961
27,863
62.0
1,192
2,125
3,317
11.9
1987
46,365
29,078
62.7
1,105
1,946
3,051
10.5
1988
47,495
29,820
62.8
1,008
1,542
2,550
8.6
1989
48,691
30,702
63.1
994
1,056
2,050
6.7
1990 (Q2 1990 01 1991)
49,014
30,757
62.8
1.489
650
2,139
7.0
1991 (Q2 1991 - Q1 1992)
48,993
30,771
62.8
1,570
2,064
3,634
11.8
1992
49,554
31,173
62.9
1,268
1,702
2.970
9.5
1993
50.292
31.617
62.9
1,117
1,486
2,603
8.2
1994 (begin new CPS)
51,419
33,021
64.2
1,322
1,241
2.563
7.8
The prevailing Federal minimum wage was $2.90 in 1979, $3.10 in 1980, and $3.35 in 1981-89. The minimum wage
rose to $3.80 in April 1990, and to $4.25 in April 1991,
NOTE: Data exclude the incorporated self-employed. Data for 1994 are not directly comparable with data for 1993 anc
earlier years due to the redesign of the Current Population Survey and the introduction of 1990 census-based
population controis. For further information, see "Revisions in the Current Population Survey Effective
January 1994." in the February 1994 issue of Employment and Earnings.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population
Survey (CPS). For more information about the data in this table. call (202) 606-6378.
110
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32:30
56/01/20
- 2 -
Table 1. Distribution of wage and salary workers paid hourly rates, by
selected characteristics, annual averages 1994
(Numbers in thousands)-Continued
03/10/95
Total
Less
$4.26
$4.26
$4.70
$5.15
$5.50
$5.75
$6.00
Characteristic
paid
than
$4.25
to
to
to
to
to
to
or
hourly
$4.25
$5.14
$4.69
$5.14
$5.49
$5.74
$5.99
more
rates
62:80
RACE AND HISPANIC ORIGIN
White
Total. 16 years and over
55,151
1,727
1,657
6,782
2,103
4,680
1,223
1,590
679
41,492
Men
27,956
577
696
2,782
833
1,949
434
668
231
22,568
Women
27,196
1,150
961
4,001
1,270
2,731
789
922
448
18,924
Black
Total, 16 years and over
8,586
205
356
1,385
439
946
229
268
105
6,038
Men
4,116
78
136
551
168
383
77
112
34
3,127
Women
4,471
127
220
834
271
562
152
156
70
2,911
Hispanic origin
U61. 707 -
Total, 16 years and over
7,130
211
401
1,219
363
856
172
273
92
4,763
Men
4,308
95
220
641
170
471
84
159
51
3,057
Women
2,822
116
181
578
194
384
87
113
41
1,706
FULL- AND PART-TIME STATUS AND SEX
Full-time workers
Total, 16 years and over
49,682
785
734
3,847
984
2,863
875
1,230
553
41,657
Men
28,224
332
342
1,781
414
1,367
328
584
219
24,637
Women
21,458
453
392
2,066
569
1,497
546
646
334
17,021
Part-time workers
Total, 16 years and over
16,773
1,207
1,395
4,671
1,663
3,008
636
706
261
7,898
Men
5,251
341
548
1,709
627
1,082
209
232
61
2,150
Women
11,522
866
847
2,961
1,036
1,925
426
474
200
5,748
NOTE: Data exclude the incorporated self employed.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current
Population Survey, 1994.
43%
NO. 953
913
- 1 -
Table 2. Distribution of wage and salary workers paid hourly rates, by major occupation group, annual averages 1994
(Numbers in thousands)
20
Total
Less
$4.26
$4.26
$4.70
$5.15
$5.50
$5.75
$6.00
Occupation
paid
than
$4.25
to
to
to
to
to
to
or
hourly
$4.25
$5.14
$4.69
$5.14
$5.49
$5.74
$5.99
more
rates
49,622
Total, 16 years and over
66,549
1,995
2,132
8,531
2,648
5,883
1,512
1,941
816
Managerial and professional
8,500
68
69
408
108
300
98
118
36
7,704
specialty
Executive, administrative, and
managerial
3,504
26
17
148
41
108
39
59
16
3,199
4,505
Professional specialty
4,996
42
52
260
67
193
59
59
19
Technical, sales, and administrative
support
21,179
290
610
2,860
909
1,951
573
693
282
15,871
Technicians and related support
2,465
16
18
72
15
57
13
24
7
2,317
130
3,286
Sales occupations
6,660
172
409
1,930
681
1,249
363
368
Administrative support, including
clerical
12,054
102
183
858
213
646
197
301
145
10,268
Service occupations
12,311
1,305
945
2,944
1,010
1,933
440
498
240
5,939
Private household
389
78
17
109
22
87
2
12
1
170
Protective service
1,418
16
34
145
37
108
24
47
23
1,129
Service, except private household
and protective
10,504
1,212
893
2,689
951
1,738
413
439
216
4,641
Precision production, craft, and
115
36
8,261
repair
8,894
48
48
318
66
252
69
Mechanics and repairers
2,990
18
15
80
14
66
20
35
8
2,814
Construction trades
3,060
17
10
90
14
75
11
30
5
2,897
Other precision production, craft,
38
50
23
2,549
and repair
2,843
13
22
148
37
110
Operators, fabricators, and laborers
14,469
218
196
1,730
485
1,245
304
460
193
11,168
Machine operators, assemblers, and
inspectors
6,742
94
143
637
162
475
135
188
101
5,445
Transportation and material moving
occupations
3,281
31
60
204
49
155
37
76
25
2,849
Handlers, equipment cleaners,
helpers, and laborers
4,446
93
193
890
274
615
131
196
68
2,874
Farming, forestry, and fishing
1,196
66
66
272
71
200
29
.56
28
679
NOTE: Data exclude the incorporated self employed.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current
NU.
Population Survey, 1994.
- 1 -
Table 3. Distribution of wage and salary workers paid hourly rates, by major industry group, annual averages 1994
(Numbers in thousands)
Total
Less
$4.26
$4.26
$4.70
$5.15
$5.50
$5.75
$6.00
Industry
paid
than
$4.25
to
to
to
to
to
to
or
hourly
$4.25
$5.14
$4.69
$5.14
$5.49
$5.74
$5.99
more
rates
Total, 16 years and over
66,549
1,995
2,132
8,531
2,648
5,883
1,512
1,941
816
49,622
Private sector
57,927
1,894
1,953
7,964
2,491
5,473
1,395
1,795
734
42,191
Goods producing
18,295
189
246
1,228
294
935
227
368
161
15,876
Agriculture
924
48
51
217
58
159
20
43
24
521
Mining
367
1
2
12
2
10
1
1
1
349
Construction
3,747
30
19
166
35
130
11
53
6
3,461
Manufacturing
13,256
110
173
834
199
635
195
271
130
11,544
Durable goods
7,809
52
47
386
85
302
97
133
61
7,032
Nondurable goods
5,448
58
126
448
114
333
98
138
68
4,512
Service producing
39,632
1,705
1,707
6,736
2,197
4,538
1,168
1,427
574
26,315
Transp. and public utilities
3,743
26
32
142
38
103
25
64
21
3,432
Wholesale trade
2,035
25
42
156
35
121
34
55
17
1,707
Retail trade
14,249
1,180
1,075
3,944
1,444
2,500
639
681
261
6,469
Eating and drinking
4,875
977
630
1,601
678
923
179
169
69
1,252
Finance, ins. & real estate
2,620
24
20
134
26
108
39
67
39
2,295
Services
16,986
451
538
2,361
655
1,706
430
560
236
12,412
Private households
478
84
21
139
29
110
.3
17
1
213
Other services
16,508
366
517
2,222
626
1,596
426
543
234
12,199
Business and repair
3,505
47
98
551
128
423
83
146
57
2,523
Personal services
1,693
84
94
380
110
278
71
109
34
9.14
Entertainment and recr
1,044
45
91
264
91
172
31
44
13
556
Professional and related
10,247
186
231
1,018
297
721
242
244
129
8,197
Forestry and fisheries
20
4
3
2
2
1
10
Government
8,623
101
180
567
157
410
118
146
81
7,431
Federal
2,104
9
22
41
13
29
6
19
10
1,997
State
2,095
33
68
214
62
152
34
46
25
1,675
Local
4,424
59
89
312
83
229
77
80
46
3,759
- Data not available.
NOTE: Data exclude the incorporated self employed.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current
Population Survey, 1994.
NU. 953
015
- 1 -
Table A. Distribution of wage and salary
workers paid hourly rates, annual averages
1994
06/01/09
(Numbers in thousands)
Total
HOURLY RATE
00 JK
Total
66,549
Under $3.35
996
Under $2.50
672
$2.50 - $2.99
178
$3.00 $3.34
146
$3.00 $3.04
114
$3.05 - $3.09
5
$3.10 $3.19
7
$3.20 $3.29
19
$3.30 $3.34
1
$3.35
15
$3.36 - $3.49
10
$3.40 - $3.44
2
$3.45 - $3.49
8
$3.50 - $3.79
108
BLS/UPUBSS - CVSC 219 (971
$3.50 - $3.54
61
$3.55 - $3.59
4
$3.60 - $3.64
8
$3.65 - $3.69
7
$3.70 - $3.74
3
$3.75 - $3.79
24
$3.80
7
$3.81 - $3.99
13
$3.81 3.84
0
$3.85 - $3.89
7
$3.90 - $3.94
3
$3.95 - $3.99
2
$4.00
814
$4.01 - $4.24
32
$4.01 - $4.04
1
$4.05 - $4.09
3
$4.10 - $4.14
5
$4.15 - $4.19
10
$4.20 - $4.24
14
$4.25
2,132
$4.26 - $4.49
916
$4.26 - $4.29
6
$4.30 $4.34
60
$4.35 $4.39
659
$4.40 - $4.44
102
$4.45 - $4.49
89
$4.50 - $4.99.
2,898
$4.50 - $4.54
1,300
CCG NU.
NO_334
See footnotes at end of table.
cr
W16
- 2 -
Table A. Distribution of wage and salary
workers paid hourly rates, annual averages
1994
(Numbers in thousands) -Continued
Total
HOURLY RATE
$4.55 - $4.59
88
$4.60 - $4.64
116
$4.65 - $4.69
227
$4.70 - $4.74
82
$4.75 - $4.79
679
$4.80 - $4.84
83
$4.85 $4.89
132
$4.90 - $4.94
122
$4.95 $4.99
68
$5.00 - $5.49
6,229
$5.01 $5.04
12
$5.05 $5.09
71
$5.10 $5.14
119
$5.15 $5.19
109
$5.20 $5.24
115
$5.25 - $5.29
843
$5.30 $5.34
112
$5.35 $5.39
125
TICI
$5.40 - $5.44
109
$5.45 - $5.49
100
$5.50 - $5.99
2,756
$5.50 $5.74
1,941
$5.75 - $5.99
816
$6.00 - $6.99
7,830
$7.00 - $7.99
6,891
$8.00 $8.99
6,085
$9.00 - $9.99
4,159
$10.00 or more
24,657
NOTE: Data exclude the incorporated self
employed.
SOURCE: U.S. Department of Labor, Bureau
of Labor Statistics, unpublished tabulations
from the Current Population Survey, 1994.
NO. 100
ITA
Table 9. Workers paid hourly rates and minimum wage workers, by sex, 1979-1993
(Numbers in thousands)
Workers paid hourly rates
Total
Percent
Paid less
Paid
Total paid the prevailing
wage and
of wage
than the
the
minimum wage or less
Year
salary
Total
and
prevailing
prevailing
Percent of
workers
salary
minimum
minimum
Number
hourly paid
workers
wage
wage
workers
Both sexes
1979
85,773
50,637
59.0
2,846
3,907
6,753
13.3
1980
85,780
50,210
58.5
3,017
4,581
7,598
15.1
1981 (end 1970 weights)
86,651
50,770
58.6
3,440
4,201
7,641
15.1
1981 (begin 1980 weights)
88,516
51,869
58.6
3,513
4,311
7,824
15.1
1982
87,368
50,846
58.2
2,348
4,148
6,496
12.8
1983
88,290
51,820
58.7
2,077
4,261
6,338
12.2
1984
92,194
54,143
58.7
1,838
4,125
5,963
11.0
1985
94,521
55,762
59.0
1,639
3,899
5,538
9.9
1986
96,903
57,529
59.4
1,599
3,461
5,060
8.8
1987
99,303
59,552
60.0
1,468
3,229
4,697
7.9
1988
101,407
60,878
60.0
1,319
2,608
3,927
6.5
1989
103,480
62,389
60.3
1,372
1,790
3,162
5.1
1990 (Q2 1990 - Q1 1991)*
103,587
62,112
60.0
2,221
968
3,189
5.1
1991 (Q2 1991 - Q1 1992)
102,872
61,782
60.1
2,351
3,365
5,716
9.3
1992
103,688
62,683
60.5
1,896
2,866
4,762
7.6
1993
105,068
63,316
60.3
1,668
2,518
4,186
6.6
Men
1979
48,389
27,771
57.4
820
1,318
2,138
7.7
1980
47,641
27,075
56.8
957
1,654
2,611
9.6
1981 (end 1970 weights)
47,769
26,936
56.4
1,090
1,489
2,579
9.6
1981 (begin 1980 weights)
48,844
27,576
56.5
1,119
1,533
2,652
9.6
1982
47,591
26,481
55.6
697
1,587
2,284
8.6
1983
47,856
26,831
56.1
585
1,658
2,243
8.4
1984
50,022
28,140
56.3
490
1,626
2,116
7.5
1985
51,015
28,893
56.6
440
1,544
1,984
6.9
1986
51,942
29,666
57.1
408
1,336
1,744
5.9
1987
52,938
30,474
57.6
364
1,283
1,647
5.4
1988
53,912
31,058
57.6
311
1,066
1,377
4.4
1989
54,789
31,687
57.8
379
733
1,112
3.5
1990 (Q2 1990 - Q1 1991)
54,573
31,355
57.5
732
318
1,050
3.3
1991 (Q2 1991 - Q1 1992)
53,879
31,010
57.6
781
1,301
2,082
6.7
1992
54,135
31,510
58.2
628
1,164
1,792
5.7
1993
54,776
31,699
57.9
551
1,032
1,583
5.0
Women
1979
37,384
22,866
61.2
2,026
2,589
4,615
20.2
1980
38,140
23,135
60.7
2,060
2,927
4,987
21.6
1981 (end 1970 weights)
38,882
23,834
61.3
2,350
2,711
5,061
21.2
1981 (begin 1980 weights)
39,672
24,294
61.2
2,394
2,778
5,172
21.3
1982
39,777
24,365
61.3
1,651
2,561
4,212
17.3
1983
40,433
24,989
61.8
1,492
2,603
4,095
16.4
1984
42,172
26,003
61.7
1,348
2,499
3,847
14.8
1985
43,506
26,869
61.8
1,198
2,356
3,554
13.2
1986
44,961
27,863
62.0
1,192
2,125
3,317
11.9
1987
46,365
29,078
62.7
1,105
1,946
3,051
10.5
1988
47,495
29,820
62.8
1,008
1,542
2,550
8.6
1989
48,691
30,702
63.1
994
1,056
2,050
6.7
1990 (Q2 1990 - Q1 1991)
49,014
30,757
62.8
1,489
650
2,139
7.0
1991 (Q2 1991 - Q1 1992)
48,993
30,771
62.8
1,570
2,064
3,634
11.8
1992
49,554
31,173
62.9
1,268
1,702
2,970
9.5
1993
50,292
31,617
62.9
1,117
1,486
2,603
8.2
. The prevalling Federal minimum wage was $2.90 in 1979, $3.10 in 1980, and $3.35 In 1981-89. The minimum wage rose to $3.80 in April 1990,
and to $4.25 In April 1991.
NOTE: Data exclude the incorporated self-employed. Estimates based on sample weights applicable to 1970 census population controls are not
strictly comparable to those weights applicable to 1980 controls. Data for 1981 are shown both ways. Although the new weights caused the
number of wage and salary workers to rise by 1.9 million, hourly paid workers to rise by 1.1 million, and those at or below the minimum wage to
to rise by 183,000, percentages and medians changed very little or not at all. See "Revisions to the Current Population Survey Beginning In
January 1982," Employment and Earnings, February 1982, pp. 8-15, for more information.
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, unpublished tabulations from the Current Population Survey.
For more information about the data in this table, call (202) 606-6378.
01/24/95
11:33
BLS COMM. 'S OFFICE
003
HISTORY or THE FEDERAL MINIMUM WAGE RATES UNDER THE
FAIR LABOR STANDARDS ACT - 1938 THROUGH 2991
Minimum hourly wage of workers in jobs first covered by:
1966 et.al.
Effective Date
1938 Act'
1961 Amendments2
Nonfarm Farm
oct 24, 1938
250
Oct 24, 1939
300
Oct 24, 1945
400
Jan 25, 1950
750
Mar 1, 1956
$1.00
Sep 3, 1961
1.15
$1.00
Sep 3, 1963
1.25
1.00
Sep 3, 1964
1.25
1.15
Sep 3, 1965
1.25
1.25
Feb 1, 1967
1.40
1.40
$1.00
$1.00
Feb 1, 1968
1.60
1.60
1.15
1.15
Feb 1, 1969
1.60
1.60
1.30
1.30
Feb 1, 1970
1.60
1.60
1.45
1.30
Feb 1, 1972
1.60
1.60
1.60
1.30
May 1, 1974
2.00
2.00
1.90
1.60
Jan 1, 1975
2.10
2.10
2.00
1.80
Jan 1, 1976
2.30
2.30
2.20
2.00
Jan 1, 1977
2.30
2.30
2.30
2.20
Jan 1, 1978
2.65 3
Jan 1, 1979
2.90
Jan
1, 1980
3.10
Jan
1, 1981
3.35
Apr 1, 1990
3.80 4
3.35 $
Apr 1, 1991
4.25
3.35
1
The 1938 Act applied to employees engaged in interstate
commerce or in the production of goods for interstate commerce.
Γ The 1961 amendments extended coverage primarily to
employees in large retail and service trades as well as local
transit systems, large construction firms, and gasoline service
station employees.
3 MW applies to all covered, non-exempt workers except
certified Section 14 workers.
4 Beginning April 1, 1990, employers may pay a training
wage of at least 85% of the MW (but not less than $3.35 and hour)
for up to 90 days to employees under age 20, except for migrant
or seasonal agricultural workers or H-2A workers.
$
Grandfather clause - Employees who do not meet the tests
for individual coverage and whose employers were covered by the
FLSA on March 31, 1990, and fail to meet the increased ADV test
must continue to receive, among other things, at least $3.35 an
hour.
01/24/95
11:33
BLS COMM. 'S OFFICE
002
Federal minimum wages in constant dollars, using alternative
price indices
Year
Nominal
Purchasing
Purchasing
Purchasing
minimum
Power
Power
Power
wage *
in 1994 dollars
in 1994 dollars
in 1994 dollars
using CPI-U
using CPI-W
using CPI-U-X1
1938
$0.25
$2.63
$2.56
1939
0.30
3.20
3.12
1940
0.30
3.18
3.10
1941
0.30
3.02
2.95
1942
0.30
2.73
2.66
1943
0.30
2.57
2.51
1944
0.30
2.53
2.47
1945
0.40
3.29
3.22
1946
0.40
3.04
2.97
1947
0.40
2.66
2.59
1948
0.40
2.46
2.41
1949
0.40
2.49
2.43
1950
0.75
4.61
1.51
1951
0.75
4.28
4.18
1952
0.75
4.19
4.09
1953
0.75
4.16
4.06
1954
0.75
4.13
4.04
1955
0.75
4.15
4.06
1956
1.00
5.45
5.33
1957
1.00
5.27
5.14
1958
1.00
5.13
5.00
1959
1.00
5.09
4.97
1960
1.00
5.01
4.89
1961
1.15
5.70
5.56
1962
1.15
5.64
5.51
1963
1.25
6.05
5.91
1964
1.25
5.98
5.83
1965
1.25
5.88
5.74
1966
1.25
5.72
5.58
1967
1.40
6.21
6.07
$5.71
1968
1.60
6.81
6.66
6.29
1969
1.60
6.46
6.31
6.03
1970
1.60
6.11
5.97
5.74
1971
1.60
5.85
5.72
5.51
1972
1.60
5.67
5.53
5.34
1973
1.60
5.34
5.21
5.03
1974
2.00
6.01
5.87
5.71
1975
2.10
5.78
5.65
5.54
1976
2.30
5.99
5.85
5.74
1977
2.30
5.62
5.50
5.39
1978
2.65
6.02
5.88
5.82
1979
2.90
5.92
5.78
5.81
1980
3.10
5.58
5.44
5.58
1981
3.35
5.46
5.34
5.51
1982
3.35
5.14
5.03
5.19
1983
3.35
4.98
4.89
4.98
1984
3.35
4.78
4.72
4.78
1985
3.35
4.61
4.56
4.62
1986
3.35
4,53
4.49
4.53
1987
3.35
4.37
4.34
4.37
1988
3.35
4.20
4.17
4.20
1989
3.35
4.00
3.98
4.01
1990
3.80
4.31
4.29
4.31
1991
4.25
4.62
4.61
4.63
1992
4.25
4.49
4.48
4.49
1993
4.25
4.36
4.35
4.36
1994
4.25
4.25
4.25
4.25
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics,
Jan-95
The effective dates for minimum wage increases are presented
BASIC METHODOLOGY
There are 12.26 million workers who would be affected by the proposed minimum wage
increase. The average worker affected works 30 hours per week. The average increase in the
wage rate would be 48 cents. We assume that they also work 50 weeks per year. (Source:
Economic Policy Institute)
Of the 12.26 million affected workers, the Economic Policy Institute estimates that 1.37
million (11.15%) received food stamps in the last year. So, these 1.37 million workers have an
increase in wage income of $986 million (1.37 million times 50 weeks per year times 48 cents
times 30 hours per week). An Urban Institute working paper estimates that the marginal tax rate
for food stamps is between Rs and 10 percent--that means that a one dollar increase in income
translates into a $ to 10 cent reduction in food stamp benefits. Thus, a $986 million increase in
wage income would reduce food stamp outlays by as much as $102 million per year. Over seven
years, a minimum wage increase could potentially reduce food stamp expenditures by as much
as $780 million.
Of the 12 26 million affected workers, the Economic Policy Institute estimates that 693
thousand (5.65%) received AFDC in the last year So, these 693 thousand workers would receive
a $499 million increase in wage income. An Urban Institute working paper estimates that the
marginal tax rate for AFDC is between 50 and 65 percent. Thus, a $499 million increase in
wage income would reduce AFDC outlays by as much as $325 million per year. Over seven
years, a minimum wage increase could potentially reduce AFDC outlays by as much as $2.5
billion.
There are at least two major reasons why this methodology overestimates the effect of
a minimum wage increase on AFDC and food stamp outlays:
(1)
In order to determine the impact of a minimum wage increase on the federal budget, we
need to cut the yearly savings in half since the federal government pays about half of all
AFDC outlays. Thus, over seven years, a minimum wage increase could potentially
reduce federal AFDC outlays by as much as $1.25 billion.
(2)
The Economic Policy Institute used the Current Population Survey (CPS) in order to
determine the number of affected workers who also received AFDC and food stamps.
Because of the survey design, the respondent answers questions about his/her current job:
wage rate, occupation, hours, etc The respondent is also asked if he/she received AFDC
or food stamps in the last year. Therefore, it is possible, for example, that someone
received welfare six months ago, but was able to get off the doles and is currently
working at a job paying $4.50 an hour. According to the CPS, he/she would be counted
as an affected worker who is also received welfare. However, there would be no welfare
savings since he/she no longer receives welfare benefits. This effect will tend to overstate
the real budgetary impact of a minimum wage increase on the federal budget.
Finally, this methodology does not completely address the impact of a minimum wage
increase on the federal budget: it ignores the effect on discretionary spending, on EITC
expenditures, Medicaid expenditures, and public housing. These effects will cut in different
directions. A minimum wage increase would most likely increase discretionary spending (since
some federal employees would be in the affected pool) and spending on the EITC (since the
family income of many minimum wage workers is in the range where increased earnings
translates into a larger EITC benefit). However, a minimum wage increase would also tend to
decrease expenditures for programs like Medicaid and public housing.
Summary:
The President's proposal to increase the minimum wage to $5.15 per hour would likely
reduce federal government spending by some $2 billion over the next seven years.
MAR-10-1995 21:09
P.01
BASIC METHODOLOGY
There are 12.26 million workers who would be affected by the proposed minimum wage increase.
The average worker affected works 30 hours per week. The average increase in the wage rate
Institute) is 48 cents. We assume that they also work 50 weeks a year. (Source: Economic Policy
Of the 12.26 million affected workers, the Economic Policy Institute estimates that 1.37 million
(11.15%) receive food stamps. So, these 1.37 million workers have an increase in wage income
of $986 million. An Urban Institute working paper estimates that the marginal tax rate for food
stamps is 5.2% -- that means that a one dollar increase in income translates into a 5 cent
reduction in food stamp benefits. Thus, a $986 million increase in wage income would reduce
food stamp outlays by $51 million per year ($255 million over 5 years).
Of the 12.26 million affected workers, the Economic Policy Institute estimates that 693 thousand
(5.65%) receive AFDC. So, these 693 thousand workers have an increase in wage income of
$499 million. An Urban Institute working paper estimates that the marginal tax rate for AFDC
is 62.7% -- that means that a one dollar increase in income translates into a 63 cent reduction in
welfare benefits. Thus, a $499 million increase in wage income would reduce AFDC outlays by
$313 million per year ($1.56 billion over 5 vears).
To summarize: The Presidents proposal to increase the minimum wage by 90 cents to $5.15 per
hour would have the desirable affect of reducing government spending on Food Stamps and
AFDC by approximately $1.82 billion over 5 years.
B
Readers Report
something wrong with this picture?
Paul Craig Roberts says that to ar-
Jane Sjogren
CORRECTIONS & CLARIFICATIONS
gue that an increase in the minimum
Associate Professor
wage may raise employment denies
Simmons College
"From the microbrewers who brought you
"the law of demand, the cornerstone
Boston
Bud, Coors (Marketing, Apr. 24) erred in
of economic science." Nonsense!
stating that Anheuser-Busch Cos. and Mill-
Economists have long known that
er Brewing Co. have spent decades acquir-
DAVID CARD'S SIDE OF
under the widespread imperfect compe-
ing smaller rivals. Until their recent micro-
THE MINIMUM-WAGE BROUHAHA
tition in our economy, raising the min-
brewery deals, neither company had made
imum wage can lower the critical mar-
Paul Craig Roberts writes, in "A
significant acquisitions of rival brewers.
ginal or incremental cost of hiring
minimum-wage study with minimum
additional workers. Where there is no
credibility" (Economic Viewpoint, Apr.
In Inside Wall Street (May 8), a graphic was
effective minimum wage, hiring more
24): "Michigan State University Pro-
misplaced and mislabeled. The chart track-
workers may require offering higher
fessor David Neumark and Federal Re-
ing the stock of Teva should have accom-
wages not only to new workers but
serve economist William Wascher ac-
panied the item on Specialty Equipment,
also to existing ones, making the addi-
quired the actual payroll data from
whose path the graphic really reflects.
tional costs prohibitive. If the mini-
fast-food establishments in New Jer-
mum wage is set high enough to be
sey and Pennsylvania. The payroll data
effective, increased hiring may entail
show that fast-food employment did
two chains, found that employment
an incremental cost equal to only the
not increase in New Jersey after the
rose in New Jersey but rose even fast-
wages paid to the additional workers,
minimum wage increase. [Instead, it
er in Pennsylvania. Neumark says he
since existing workers have already
declined 4.8% relative to the control
verified by phone that the data provid-
had their wages raised. Hence, compa-
group in neighboring Pennsylvania.]"
ed by EPI were complete. He says his
nies may indeed increase employment
On the contrary, Neumark and Was-
study, still collecting data, has com-
when the minimum wage is raised.
cher did not acquire the payroll data.
pared results only with the similar
The study was properly received as
Rather, the data were acquired from
portion of Card's restaurants.
ingenious and outstanding. But it was
a selected group of franchisees by the
only one of a number of recent studies
Employment Policy Institute (EPI), an
Roberts claims that the data used
showing that the minimum wage did
organization funded by business con-
in the Card-Krueger study of minimum
not significantly reduce employment.
tributions and opposed to minimum-
wages are obviously flawed and that
Roberts' attacks on the American Eco-
wage increases. EPI then provided data
the publication of this paper casts seri-
nomic Assn. and on Card, who is to
to Neumark and Wascher.
ous doubts on Card's competence as an
receive the AEA'S highest award for an
The data set used in my study with
economist as well as on the standards
economist under 40, are nasty and un-
Alan Krueger of the effect of the New
at The American Economic Review.
justified. I have served on the commit-
Jersey minimum wage includes 410 res-
Roberts dramatically overstates the
tees that make the awards; they are
taurants from four fast-food chains:
flaws. He notes that the data contain
not given to those who do shoddy
Burger King, KFC, Roy Rogers, and
large variations hard to explain. In eco-
work.
Wendy's. Our sample includes both com-
nomics, data often look like this-and
Robert Eisner
pany-owned and franchise outlets. The
well-understood ways exist to assess
Department of Economics
payroll data set used by Neumark and
the consequences of such variation for
Northwestern University
Wascher includes 71 restaurants in the
empirical results. One of us did a statis-
Evanston, Ill.
Burger King and Wendy's chains, all
tical re-analysis of the Card-Krueger
Editor's note: Eisner is a past presi-
owned by franchisees. Neumark and
data and found the basic findings unaf-
dent of the American Economic Assn.
Wascher have not shown that results
fected by this variation. The study by
based on "the actual payroll data" differ
Neumark and Wascher cited by Roberts
HOW TO REACH BUSINESS WEEK
from the results reported in our study.
performs a service by collecting addi-
They have not even analyzed data for
tional data on this point. That their
LETTERS FOR READERS REPORT
the same restaurants, or the same res-
findings contradict Card's and Krueger's
All letters must include an address and daytime and
evening phone numbers. We reserve the right to edit
taurant chains, or for stores operated
is evidence of healthy discourse on a
letters for clarity and space and to use them in all
by the same groups of owners.
difficult empirical problem-not, as Rob-
electronic and print editions.
David Card
erts asserts, evidence of incompetence.
Mail: Business Week, 1221 Avenue of the Americas,
Professor of Economics
Anyone who follows economics lit-
39th floor, New York. NY 10020
Fax: (212) 512-4721
Princeton University
erature knows that Card is among the
Internet: [email protected]
Princeton, N.J.
most careful and conscientious people
America Online readersbw
Editor's Note: New Jersey's experience
doing empirical work in labor econom-
SUBSCRIBER SERVICES
is hotly debated in the economic profes-
ics. Roberts' attempt to portray Card
For individual subscriptions, corporate subscriptions,
sion. The study by Card and Krueger
otherwise is a blatant effort to intimi-
renewals. changes or problems, and single copies.
was based on a telephone survey of
date dissenting voices.
Phone: (800) 635-1200 or (609) 426-7500
Fax: (609) 426-7623
outlets of four fast-food restaurant
Jim Rebitzer
Sloan School, MIT
COPYRIGHT PERMISSIONS
chains. It concluded that employment
Before quoting or reproducing editorial material.
in New Jersey outlets rose after the
Cambridge, Mass.
Phone. (212) 512-3396
state raised the minimum wage in
Fax: (212) 512-4938
1992, while employment fell in neigh-
Lowell Taylor
boring Pennsylvania, where the mini-
Heinz School
BUSINESS WEEK ONLINE
The full text of Business Week and many other features
mum wage did not change. Neumark
Carnegie Mellon University
are available on America Online. For information, call
and Wascher, using payroll data from
Pittsburgh
(800) 641-4848 and mention Business Week.
16 BUSINESS WEEK / MAY 15 1995
WASHINGTON TIMES
JUN 17 1995
Moderate increases in minimum wage have little effect on unemployment
In a June 12 Op-Ed article ("Facts
ments he first made months ago in
was statistically significant by the
and fiction about the minimum
a Wall Street Journal Op-Ed, argues
standards that economists use to
wage"), Richard Berman, of the
that the telephone survey created
evaluate their results.
fast-food-industry-sponsored
"inaccuracies" in Card and
Mr. Card and Mr. Krueger have
Employment Policies Institute,
Krueger's "underlying data," that
not, as Mr. Berman asserts,
repeats inaccurate attacks against
rendered their findings "meaning-
"refused to acknowledge" the "new
minimum-wage research by Prince-
less." To support his position, Mr.
facts" about their data. As Mr.
ton professors David Card and Alan
Berman cites a paper by economists
Berman knows, they have defended
Krueger.
David Neumark and William
their research ably, most notably at
In a study published in January
Wascher, who analyzed payroll
a June 1 forum sponsored by the
in the prestigious American Eco-
records for a small fraction (17 per-
America Enterprise Institute.
nomics Review, Card and Krueger
cent) of the restaurants in the Card
While Mr. Berman can represent
found that the 1992 increase in New
and Krueger study.
the interests of minimum-wage
Jersey's state minimum wage did
However, Mr. Berman fails to
employers in the fast-food industry,
not reduce employment in fast-food
understand that the correct inter-
he is hardly qualified to assess the
restaurants, relative to a control
pretation of both studies is that the
"facts" about the emerging body of
group in Pennsylvania, where the
19 percent increase in the mini-
evidence on the minimum wage,
minimum was unchanged. Mr.
mum wage had no significant effect
nearly all of which points to minimal
Card and Mr. Krueger, who are two
on fast-food employment. Mr. Card
effects for moderate increases in
of the most respected labor econo-
and Mr. Krueger found a slight
the minimum wage.
mists in the country, based their
increase in employment; Mr. Neu-
conclusion on a telephone survey
mark and Mr. Wascher, with a
JOHN SCHMITT
that met the highest professional
much smaller, less representative,
Economist
standards.
sample, found a decrease. The
Economic Policy Institute
Mr. Berman, rehashing argu-
clear point is that neither change
Washington
05/23/95
14:02
BLS COMM. 'S OFFICE
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Myth and Measurement: The New Economics of the Minimum Wage
A Review
by
Finis Welch'
Texas A & M University
"The book will interest everyone involved in the minimum wage debates, and it will cause
economists to question seriously the models they use and how they do empirical research."
Ronald G. Ehrenberg, Cornell University
Princeton University Press filer announcing the book.
Ron is right. I question David Card and Alan Krueger's models and how they do empirical research.
Although the notoriety surrounding Myth suggests important conclusions that challenge economists' fundamental
assumptions, I am convinced that the long run impact will not be to revise our assumptions regarding
employment effects of minimum wages. It is more likely that the work will be soon forgotten or if there is
a lasting effect it will be to spur, by negative example, a much-needed consideration of standards for the
collection and distribution of primary data.
With very few exceptions, labor economists have been content with performing their work from
introspection and logic alone and/or from analyzing secondary data where collection methods are well
documented and publicly available. Although it is the sum and substance of economic history and experimental
economics, the collection and analysis of primary data is new to us. Two of the authors' studies derive from
their own surveys. As a profession, we and especially our poer-reviewed journals must develop standards for
the description and release of such data and it might even be useful if we would establish guidelines for the
collection of surveys. There are also questions concerning standards and responsibilities when one finds results
that contradict widely held opinions. It may be good shortrun debate strategy to announce one's results as
loudly as possible and then attack critics and the existing literature as either inept or inconsistent or both, but
the result will have a more durable impact if the time and energy devoted to defending it was devoted Instead
to examination of alternative interpretations. Myth's primary argument is that increases in minimum wages do
not reduce employment. If this result is robust the authors, who after all know more of the fine details of their
work than anyone else, can only gain from critical review.
'I am grateful to my colleagues, Ray Battalio, Donald Decre, Tom MaCurdy and Kevin Murphy for suggestions
and for comments on a previous draft. The opinions are my own.
1
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BLS COMM. 'S OFFICE
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Myth is built around four articles. Three of them were published in the October 1992 issue of this
journal. The fourth-the one about fast food restaurants in New Jersey and Pennsylvania-was published in the
American Economic Review (AER). It is coauthored by David Card and Alan Krueger. Two others were
written by David Card alone and the fourth was coauthored by Larry Katz and Alan Krueger. The one about
fast food restaurants in Texas by Katz and Krueger and the Card/Krueger one rely exclusively on telephone
surveys collected by or under the direction of the authors. Both papers provide only a brief description of the
survey methodology. Copies of the analytical data file have been made available along with a copy of the
questionnaire for the New Jersey/Pennsyivania Survey. To my knowledge, there has been no public release
of any part of the Texas Survey.
My review concentrates on the New Jersey/Pennayivania paper. There is little to say about the Texas
Survey paper. I have been unable to get the data and the authors' analysis is inconclusive. David Card's two
studies are discussed only briefly.
The New Jersey Study
The 1989 Amendment to the Fair Labor Standards Act was first debated in Congress in 1988 and
subsequently signed into law in November 1989. It called for an April 1, 1990 increase in the federal
minimum from $3.35 to $3.80 per hour to be followed by an April 1, 1991 increase to $4.25. In February
1990, before the first of the two federal increases took effect, the New Jersey Legislature passed a bill calling
for an April 1, 1992 increase in the state minimum wage to $5.05. The Card/Krueger Study uses Pennsylvania,
where the minimum remained at the federal level of $4.25 as a control for measuring employment effects of
the New Jersey increase in the minimum wage.
David Card's two earlier papers rely on the Outgoing Rotations File of the Current Population Survey
(CPS) to infor effects on teen employment of other increases in the minimum wage so it is instructive to
compare Pennsylvania and New Jersey using the same CPS data before we examine the alternative data used
* preparing for this review, I sent letters to each author of each paper (so that Alan Krueger got two)
requesting whatever survey information was available. Specifically, I asked for the questionnaire, interviewer
instructions, coder instructions, the full machine-readable data file of responses as well as the analysis file (i.e., the
edited file) that was used for the paper. Later, over the phone, I asked both David Card and Alan Krunger for the
same material plus anything they had OR pre-test results for the survey instrument.
David Card's response was that he had sent me the questionnaire and analysis file (which be had) and that be did
not have the other stuff. Regarding New Jersey/Pennaylvania, Alsa Krueger mid be believed they had met me all
that was required. Regarding the Texas Survey for the paper with Larry Kate, Krueger protested that he would get
me everything I requested when be got the chance. When I indicated my deadline for this review, he mid that
would be too soon. Evidently, Larry Katz did not receive my letter. The Katz/Krueger paper indicates in lext and
footnote that the data and questionnaires are available on request.
2
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18
33
47.8
by the authors. in 1988 when the federal increases were just beginning to be discussed and/before the New
Jersey debates, the teenage employment rate in Pennsylvania was 45.8 percent; It was 44.9 percent in New
Jersey.3/ in the year following New Jersey's minimum wage increase, teenage employment in Pennsylvania
was 43.6 percent, within sampling error of the 1988 level.⁴ in contrast, the teenage employment rate in New
Jersey had fallen to 34.5 percent-seventh lowest among U.S. states.⁵
The author's study is based on a telephone survey of fast food stores from four chains, Burger King,
KFC, Roy Rogers and Wendy's. The first wave of the survey in late February and early March of 1992 was
immediately before New Jersey increased its minimum to $5.05-although the increase had been on the books
for over two years. The second wave was conducted seven to eight months after the increase in November and
December of 1992.
The baseline survey covered establishments with completed Interviews (331 in New Jersey and 79
in Pennsylvania) and the authors report an 87 percent completion rate on the first wave. The second wave had
a reported 90 percent completion by telephone leaving 39 nonresponses which were subsequently contacted
directly. The direct contact showed that 10 of the nonrespondents were closed (either temporarily, for repair
and renovation, or permanently) and of the 29 remaining, 28 consented to personal interviews.
The survey was recently challenged by the Employment Policy Institute (EPT) in as editorial by Richard
Berman in the Wall Street Journal and a supporting background paper, "The Crippling Flaws in the New Jersey
Fast Food Study". The first part of the challenge (citing employment lovels at each of the two survey waves
for a number of stores) is that on the surface the data are incredible. The second part refers to an attempt to
match the survey data with payroll records. In a companion paper by David Neumark and William Wascher,
the survey and its analytical results are challenged by comparing the payroll records with the Card/Krueger
employment tallies. After reviewing the survey instrument and the analytical data file from the Card/Krueger
Survey, I agree with the EPI criticism. The numbers are incredible.
It is not clear that the interview process was formalized. There has been no response to my requests
for anything regarding interviewer instructions and training, coder instructions, and/or pre-test results. The
two key questions, wages and employment, invise insccurate responses.
'As with Card's carlier studies, teansgers include men and women ages 16-19. The employment rate
calculations use the CPS Earner Study sample weights. Since each of the wage increases occurs on April 1, years
are defined as the 12 months beginning on that date.
The change in Pennsylvania's employment rate is -2.2 percent and the standard arror of the change is 2.3
percent; the 1988 and 1992 lovels are less than one standard deviation apart.
The states with lower teem employment in 1992 are Washington D.C., Mississippi, West Virginia, New York,
Louisiana and Arizona.
3
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Immediately after the introduction the employment quiz begins:
1.
How many full-time and part-time workers are employed in your restaurant, excluding
managers and assistant managers?
2.
And how many managers and assistant managers?
The interview form has two spaces for the answer to the first question (full-time and part-time) and one space
for the second. Aside from the presumption that assistant managers cannot be part-time and, aside from the
obvious point that neither part- nor full-time is defined, the compound nature of the first question would
confuse respondents.
The wage questions are no better:
4.
What is the average starting wage for a nonmanagement employee at your restaurant today?
5.
Is it the same starting rate for full-time and part-time workers?
Question 4 has two blanks where an interviewer would write a response (a non-what?). The first blank is for
a numeric response and the second is for "minimum wage" so that the coder can full in the applicable value.
Question 5 has two spaces, one for part-time and the other for full-time. Although the second wage question
appears to have been intended to draw two responses, many might believe a simple "yes" or "no" would
suffice. In any case, reviewers cannot examine the coded responses to Questions 4 and 5 for evidence of the
confusion one expects them to elicit because the "analysis" file that is distributed contains only one starting
wage for each survey wave with no indication as to whether it is taken from Question 4 or Question 5.
Among the 79 survey records shown for Pennsylvania, 68 have valid wage records in each of the two
waves. At the baseline interview 22 of these 68 are coded as having a starting wage of $4.25 (the applicable
minimum) while the remaining 46 had higher starting wages, ranging from $4.35 to $5.50/hour. By the time
of the second wave, 13 of the 22 (59 percent) that initially paid $4.25 had increased their starting wage. It may
not be surprising that starting wages increased, but would it be surprising If they fell? Among the 46 who
initially paid more than the minimum, who therefore could reduce wages without violating federal law, 27 (also
59 percent) are coded as having done so by the time of the second Interview! Among the 331 records for New
Jersey, 302 have valid starting wage observations for each survey wave and 23 of them had first wave starting
wages above $5.05/hour. They are the only ones that could lower the starting wage without violating New
Jersey law. The analysis files shows that 19 of the 23 (83 percent) lowered their starting wage and 18 of the
19 lowered the starting wage to the second wave minimum of $5.05/hourl
it is tempting to argue that the fact of failing wages is itself proof that the increased minimum has
reduced employment opportunities among firms that would otherwise pay wages below the minimum. The
The questionasire has no interviewer check items nor any directions regarding responses to questions by store
representatives.
4
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"proof" is that those who would otherwise pay more can, with the increased minimum, find an adequate supply
of labor at a reduced wage. Of course the alternative to this argument is that there is so much random noise
in the data that they should be dismissed altogether. The employment data support the second view.
Before examining patterns of changes in employment, it is worth pointing out that the coded levels of
employment are anomalous. In particular, in the coded responses to the baseline survey, there are 28 records
that report fractional (the fraction is always one-half) full-time employees, there are 29 records that report
fractional numbers of part-time employees and there is one record that reports a fractional number of
managers.⁷ One can imagine a case where part-time employees work 20 hours per week such that someone
who works 10 hours is one-half of a part-timer from an hours worked perspective. Even in this case, it is hard
to imagine what is meant by one-half of a full-time employee. Perhaps someone who works 60 hours is a full-
timer and a half. These alternative interpretations suggest that full-time and part-time are defined and there
is no indication that they are.
Recall that the employment question begins "(bjow many full-time and part-time...." making it unclear
whether the Interviewer is asking for the combined or separate count of part- and full-time workers. The coded
responses to the first Interview show 67 stores with no full-time employees (other than managers) and 311
stores with full-time employees among the 378 that were open and have valid responses to employment
questions in both survey waves. Thus 18 percent of the stores have no full-time employees at the time of the
baseline interview. Strikingly, 46 of the 311 (15 percent) who initially had full-time employees reportedly had
none by the second interview, 7-8 months later. Conversely 47 of the 67 (70 percent) who initially had no full-
time employees are coded as having added them by the time of the second interview. The magnitude of these
swings is not trivial. Employment averaged a little over 21 workers in both interviews." The stores that lost
all full-time workers, lost 10.7 on average. The stores that initially had none and are coded as having added
10.4 on average by the time of the second interview. Is the technology so flexible and in such rapid flux or
are the coded responses dominated by error?
Consider the following. Among the 378 stores with valid non-zero employment in both survey waves,
average first wave employment is 21.14 and average second wave employment is 21.27. This trivial difference
in averages between survey waves is associated with astonishing changes within stores, however. The largest
Noting this anomaly, I asked Alam Krueger (over the phone) how it could be explained. He seemed surprised
that such observations exist and suggested that is cases where the respondent was vasure whether particular
employees ware part-time or full-time they (meaning him, his cosution, or assistants) may have divided them 50/50
between part-and full-time. of the 48 records with fractional employees, when summed over types, only 10 sum
to integer numbers of employees M they would if some employees were divided between part- and full-time.
"Following Card and Krueger, employment is full-time equivalence with part-time workers counted M one-half.
5
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gain is 34 employees, the largest loss is 41.5, and the standard deviation of the change is 9.0 employees! In
examining changes in employment between the two survey waves it is important to recall that noise dominated
data regress toward means.
When the first wave data are arrayed by full-time equivalent employment, we discover an amazing fact.
The 21 restaurants with the smallest employment averaged only 7.5 employees at the time of the baseline
survey. What is unusual about these firms is that in the interval between the first and second interviews,
employment increased for every one of them to an average of 12.9 employees. This amounts to a 71 percent
gain in 7-8 months. At the opposite extreme, the 22 largest restaurants averaged 47.4 employees at the baseline
and employment fell for every one of them in the 7-8 months between interviews. The second-wave average
is 27.6 employees for a 42 percent loss. As with the changes in wages, we could Invent an esoteric theory to
explain the great equalization in firm size that apparently occurred in New Jersey and Pennsylvania in a very
brief period.' Or, we could simply note that independently of state and survey wave effects, the correlation
between first and second Interview employment is only 0.552. This is, frankly, astonishing for two surveys
conducted in the same year.
Are these the kind of data you would recommend as the basis of national policy?
The Texas Study
This is the study that relies on the survey of 100 fast food restaurants in Texas. I have been unable
to secure the data on which it is based and, therefore, have little to say about it." Perhaps the most
interesting feature is that in regressions attempting to explain employment changes one cannot reject the
hypothesis that all estimated coefficients are jointly zero. is other words, this study is uninformative. This
raises 8 fundamental scientific point that pervades all of the Card/Krueger studies summarized in Myth.
Namely, a finding of an inconclusive result does not prove there is no effect. Every introductory statistics
course stresses this point ad nauseam.
"Cortainly if the phenomenal wage and employment equalization is real, the story for fans of industrial
organization is much more exciting than the sull result for minimum wage effects.
"In comparison to the reported response rates for the New Jerney/Pennsylvania Survey (87 percent first wave;
90 percent second wave before personal interview) the response rates for the Texas Survey appear unually low
(57 percent on the first wave and 8 66 percent second WEYS response). It appears that the completed two-wave
survey included less that 4 in 10 of those initially contacted.
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The Two Card Papers
David Card's first paper examines teenage employment responses to the 1988 increase in California's
minimum wage. Using a control or comparison group of "comparable" states-Georgia, Florida, New Mexico,
Arizona and Dallas/Pt. Worth-where the minimum did not change, be concludes that the wage hike in
California did not reduce teenage employment. Georgia? New Mexico? Dallas?
When the minimum wage was increased, California's teenage employment fell only briefly and then
rebounded above previous levels. The problem with attributing the employment increase to the wage bike is
that California's economy was expanding while the comparison areas were stagnant.
Each of the four cornerstone papers in Myth calculates the cost of an increase in the minimum wage
by calculating what it would cost to raise the wages observed before the increase to the level of the now
minimum. California raised its minimum from $3.35 to $4.25/bour on July 1, 1988. Using the same CPS data
as Card and California teenage wages in January-March of 1988, I find that in order to increase every wage
in the $3.35-$4.24 range to $4.25, the average wage would have increased by 4.33 percent. When the exercise
is repeated for April-June the increase is 5.68 percent.
Since wages between $3.35 and $4.25 continue to be reported after July 1, I repeated the exercise for
the last two quarters of 1988. In July-September the average would have increased 1.21 percent and for the
final quarter, the average wage would have increased 1.04 percent by raising wages in the $3.35-$4.24 range
to $4.25. I do not know whether the below minimum wages that are reported result from non-compilance or
from reporting and coding error, but I do know that the after-the-fact calculations estimate the exaggeration
in the before-the-fact calculations. By subtracting the cost increase calculations for July-Decessber from the
calculations for January-June, we have an estimate that the increase in the minimum wage in California raised
the average cost of hiring teenagers by 3-4.5 percent. We, in fact, see far larger quarter-to-quarter changes
in average wages when the minimum is held constant. For example, the average teen wage fell 6.5 percent
between the first and second quarters of 1988 when the minimum was $3.35/hour and it fell 9.3 percent
between the third and fourth quarters when the minimum was $4.25/hour. Two points are relevant. First, in
an expanding economy the employment response to an exogenous Increase in costs of 3-4.5 percent may be
hard to detect from a relatively small sample of the population. Second, labor markets are dynamic and wages
fluctuate in response to many factors especially for teenagers who are predominately students. There are
seasonal shifts in supply and demand; there is trend and cycle; there is composition-today's working teens are
not the same as tomorrows who may be either more or less productive; there is sampling error since we
observe a small fraction of workers; and, finally, there is measurement error. The quarterly fluctuations in
average wages indicate that the background noise in wages may dominate the signal of the higher minimum.
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The simple before-and-after comparisons of the California Study are interesting but their reliability is at best
conjectural.
The second Card Study examined differences across states in changes in teenage employment
surrounding the 1990 increase in the federal minimum wage. According to Card, if increases in the minimum
reduce employment then it follows that the reductions should be greatest in the states with the lowest wages
because compliance with the increased minimum is more expensive in those states. My colleagues, Donald
Decre, Kevin Murphy and I (1995) have criticized this idea by pointing out that the low wage states are in the
South and Southwest where relative employment growth was most rapid. The 1990 increase in the federal
minimum was only half as large as the 1988 increase in California and the employment responses to it were
probably proportionately smaller. is it surprising that the increase did not reverse the regional patterns of
employment growth that have become so familiar in the last few decades?
Concluding Comments
My review has concentrated on what I see as the primary weaknesses of the studies that form the
foundation of Myth. The twin issues are data quality and the "experiments" being reviewed. I have avoided
the purely economic issues but they ought to be mentioned.
First, two of the four studies are restricted to the fast food industry. Nothing, repeat nothing, in
ordinary competitive theory predicts that employment in any given industry or in any given restaurant will
decline in response to an increase in the minimum wage. The questions revolve around factor intensities.
Suppose that Chinese and Mexican restaurants are low-wage labor intensive relative to fast food chains, like
those of the Katz/Krueger and Card/Krueger Surveys, that specialize in fried chicken and hamburgers. Suppose
also that Chinese and Mexican food are consumer substitutes for hamburgers and fried chicken. In this case,
an exogenous increase in the cost of low-wage labor will raise the cost of Chinese and Mexican food relative
to the cost of hamburgers and fried chicken. If the consumer substitution between restaurant foods swamps
factor substitution within fast food restaurants, the demand for low-wage labor in fast food restaurants will
increase in response to an increased wage.
The same point, in somewhat different clothes, holds for firms within an industry. Assume that the
technology of fast food production is such that larger firms are less intensive (i.e. have smaller expenditure
shares) in low-wage labor. In this case an exogenous increase in the cost of low-wage labor increases the size
of the most efficient firms. If all firms are identical, the output of every firm increases. Numbers of firms
will fail, but numbers can fall because some existing firms close or because some that would otherwise open
do not. It is hard for surveys, even well-designed surveys, to identify those firms that otherwise would have
opened. Finally, there is the "dynamic monopaony" theory offered by the authors. It, frankly, does not pass
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the straight-faced test. I live in a college town that has several dozen fast food restaurants, but only one
Wendy's. Do Messrs. Card and Krueger really believe that if Wendy's increased its employment, say, by
adding another two or three part-time students, that would raise the wage that I have to pay to have my laws
mowed? I direct their attention to the "mono" in monopsony. Just how many fast food chains are there? And,
what is their share of total low-wage employment, singly, and en masse?
Returning to the four cornerstones of Myth: The Texas Study can be dismissed. There are no
conclusions to examine. The New Jersey Study is a monument to poor survey methodology. The two studies
by David Card use control groups that are questionable-and I think, misleading-and the "experiments" have
little "bite". David Card's two papers and the Katz/Krueger paper appear in this Journal (October 1992) as part
of a symposium organized by Alan Krueger. The New Jersey/Pennsylvania Survey is published in the
American Economic Review as testimony to the vagaries of the review process.
As I indicated in the introduction, the importance of Myth lies in the questions it raises. There is really
no question about surveys; they ought to be planned carefully and conducted systematically. Questions should
be clear and concise. Interviewers should be trained and armed with check item questions to clarify ambiguous
responses. Contingencies should be considered and reactions to them should be standardized and committed
to writing. And, methods and procedures should be distributed for critical review. There is, however, a
question as to the use of primary data. I have always thought that our reliance on generally available secondary
data is an important safeguard. It is clearly dangerous to the science If we each have our own "pocket" surveys
that reportedly contain earth-shattering results.
Finally and most important, there is the confusion between an inconclusive result in a statistical
experiment and "proof" that the answer is indeed inconclusive. When we return empty-handed from a long
search, it is tempting to announce that there is no treasure in "them thar hills" but the only proof that we have
to offer is that we did not find it.
9
What Will a 10% 50% 100% Increase in the Minimum Wage Do?
Richard B. Freeman
Harvard University and NBER
Centre for Economic Performance
London School of Economics
April 1995
Economists, like Gilbert and Sullivan's Englishmen, are divided into two basic
groups. On one side are those who believe that responses to price incentives are usually large
-- Big Responders (BR). On the other side are those who believe that responses to price
incentives are generally small Small Responders (SR).
Present a BR with an exogenous change in price or wage for instance a mandated
increase in the minimum - and his prior is that there will be a large response in quantities.
BRs feel comfortable with perfect competition, Hecksher-Ohlin trade models; factor price
equalisation; large responses in effort and hours to marginal taxes; welfare traps; arbitrage of
financial opportunities across national lines; large employment losses to administered wages.
Forced to choose between a first-approximation economic model with an infinite elasticity of
response and one with zero elasticity, the BR economist opts for infinity: "in the long run,
there are many substitutes, new competitors, suppliers, etc."
Present an SR with a change in price or wage, and his prior is that quantities will not
change much. SRs feel comfortable with input-output analysis, imperfect competition, factor
content analyses of the effects of trade on employment, the correlation of investment and
savings across countries, backward-bending supply curves, and the persistence of economic
rents. Forced to choose between a first-approximation model with infinite elasticity of
response and one with zero elasticity, the SR economist opts for zero: "in real world, costs
of adjustment are large, uncertainty slows responses, habits change gradually, etc."
What does the BR-SR divide have to do with the Card and Krueger volume? A lot.
Along with its other valuable contributions, the book provides the most important evidence in
recent years on the SR side of this recurrent debate. It does this through an exemplary
empirical analysis of the effects of minimum wages, on which most economists tend to be
BRs by inclination.
It is important to recognise at the outset that there is little in economic analysis to
help us decide whether quantity responses to price incentives are likely to be large or small.
Many economists expect larger responses in the long run; or when budget constraints are
important. Logic tells us that massive changes in prices (say, tripling our wages) that turn
balance sheets from the black to the red will have large effects on quantities (the Deans
might close down our departments). But whether the BR or SR perspective applies to
minimum wages in the range observed in the U.S. is a purely empirical question. It does
not have to do with acceptance or rejection of neoclassical economic theory. There is no
theoretic or a priori reason for assuming that minimum wages that average 40-50% of hourly
earnings in manufacturing have large or small effects on employment, or even that minimum
wages that average 70 or 80% of average earnings will necessarily do so. Indeed, economic
theory is SO "rich" that it offers us monopsony models that predict increases in employment
in response to minimum wages. Only careful empirical analysis can determine the magnitude
of employment responses to the minimum. The BR-SR divide is an empirical one.
This book offers the most careful and wide-ranging analysis of the empirical evidence
on minimum wages in the U.S. that any social scientist could ask for. On many issues, the
evidentiary base is sufficiently diffuse to allow economists with different priors to reach
different conclusions -- to make a lawyers' case, as it were, for their preferred BR or SR
world. (Labor economists think this is true of virtually all macro-economic studies, where
conclusions seemingly hinge on assumptions - called structural models -- that determine
what one sees in limited time series data, because the evidence does not "speak for itself").
2
This is not the case for assessing the short or medium run effects of the minimum wage on
employment. Minimum wages change in discrete exogenous jumps over time and across
areas that creates "natural experiments". Card and Krueger exploit this variation admirably.
Indeed, they do so in such a way as to provide an exemplary example of how to do empirical
economics. The authors examine not one, not two, but many such experiments to judge the
minimum wage's employment effects. They (and colleagues) gathered new data or analysed
available CPS files, before/after recent changes in minimum wages, with control groups,
where feasible. They looked at evidence on the effects of the minimum on the distribution of
earnings and, using event studies, of the effect of announced increases on the value of firms
and on prices. Forget for the moment the results or possible data problems in particular
parts of the work. If you want to find out what the world says about an issue, rather than to
force the world into your prior structural model, this is the way to do it. Richard Lester, to
whom the book is dedicated, has been greatly honored by such a depthful analysis.
The only thing missing, which I would have liked to see, are some detailed case
investigations of low wage employers' response to the minimum, or better yet, some
ethnographic experience, to enrich the book. Such analysis would please Lester, also, if I
am not mistaken. A few Ronald Reagan style anecdotes would go a long way to diffusing
some of the criticisms the book has received from employer groups.
The chapter that I found weakest was on foreign experiences, which also is largely
the case of limited information. Here, recent British work on the abolition of wages councils
yields SR results consistent with those in this book: no adverse change in employment
(Machin and Manning). And analysis of the employment consequences of comparable worth
3
in Australia found little or no job losses for women from large mandated increases in their
pay (Gregory and Duncan).
There is more support for the SR view in empirical analysis than most economists
have recognised.
Methodology aside, Card and Krueger reach strong and in some cases, surprising
conclusions, or, rather and more properly, they report empirical results that yield these
conclusions: negligible employment effects in most cases, and positive employment effects in
some well-designed natural experiments. Their summary table (table 12.1) shows 6 positive
employment effects, of which 2 are significant, and one 0 effect.
Are the results believable? They are generated by well-designed analyses, but even
the best natural experiment does not have the power of a controlled laboratory experiment, so
we (and the authors) must apply some prior judgement. It could be, for instance, that the
minimum wage is not truly exogenous (as they suggest in some cases), or that BR level
employment effects simply take longer to take effect.
To economists with an SR orientation, the results will fit with priors and thus surely
pass any believability test. To those who work with data, the quality of the analysis makes
the results believable, largely because the design of most of the studies is such that "ceteris
paribus" is much more than a theorists fable. I read table 12.1 as rejecting negative effects
rather than showing that minimum wages raise employment and would be surprised if further
work found much additional evidence that minimum wage increases were associated with
employment gains. But empirical analysis is full of surprises.
Economists with a BR orientation who give more weight to priors than to evidence
4
will find the results troubling. But they cannot simply denounce the findings. One virtue of
Card and Krueger's book is that it has shifted the burden of proof about the employment
effects of the minimum wage. Even a cursory look at data from the last decade provides
support for their position as opposed to a BR view of the U.S. minimum. During the 1980s,
the Reagan Administration cut the real minimum wage. Employment of the group most
affected, teenagers, fell relative to that of adults. Unemployment rates improved at most a
whisker relative to those of adults. At the end of the decade/early 1990s, the federal
minimum was increased and several states raised their minimum. If you thought these
changes would have noticeable adverse effects on employment, Card and Krueger show
otherwise. To answer a slightly paraphrased version of Charlie Brown's 1988 question,
"yes, Virginia, the employment effects of the minimum wage were overrated".
Maybe there is a case for BR employment changes to the minimum over some long
time horizon. This book does not reject the possibility that ten years after, say, New Jersey
raised its minimum (and maintains the level of the minimum relative to other wages),
employment in low wage sectors might be lower than it would otherwise be. To test this
possible BR claim will, however, be exceedingly difficult, because economies change so
much over a decade (Card and Krueger mention inflation; I would stress structural changes)
that even the most creative economist will find it hard to make ceteris paribus all that
believable. For this reason, I would bet the family house that no one will find large
employment effects of the minimum wage over longer periods (if they can find such) with
the authority that Card and Krueger have rejected employment responses in the time periods
they explore. Empirical analysis of quantitative responses to price incentives is most
5
convincing over periods when the structure of the economy, technology, etc can safely be
viewed as fixed.
In an era with rising inequality, it is natural to look anew at the minimum wage as a
possible way to improve the earnings of low paid workers, and thus at the policy
implications of a major volume on the minimum. The authors suggest that their results
should lead to "a reorientation of policy discussions away from the efficiency aspects of the
minimum wage and toward distributional issues" (p 393). I hope this is the case. In recent
years the BR view has dominated much public discussion -- supply side economics typically
posit large responses to prices, taxes, regulations etc. Discussions of regulations and
administered wages or other mandatory labor costs are often said to explain European
unemployment problems. Textbook discussion of minimum wages has the same flavor:
stressing job losses not wage gains. Increases in the minimum thus seem exceedingly
dangerous, and its supporters are often viewed as populists with little knowledge of
economics. This book goes a long way to redressing this imbalance. Perhaps it will be part
of an overall resurgence of SR economics. At the least, it should make it respectable to
discuss the minimum wage as a policy option, with benefits and costs, in an era of rising
inequality.
What factors ought we to consider as part of a "reorientation" of public discussion?
There are, in my view, five issues in assessing the policy of using the minimum wage
to help low paid workers.
1. Does the minimum redistribute income to low wage workers? It will do so if the
estimated elasticity is below one. The book shows that modest increases in the minimum are
6
likely to have no effect on employment. While there are researchers, notably Neumark and
Wascher, who argue the opposite, the debate is over whether there is "no" effect, modest
positive employment effects, or small negative effects, to the minimum. It is not about
whether or not there are large negative effects.
2. Does the minimum divide the work force into insiders, employed permanently at
the minimum, and outsiders, longterm jobless because of the minimum?
In the U.S. labor market with high turnover, particularly in low wage jobs, it is hard
to make the case for such a division; even analysts who believe in segmented labor markets
do not draw the European insiders (employed) - outsiders (unemployed) division. The
studies by Topel and Juhn, Murphy, and Topel of employment at the lower end of the wage
structure make it clear that low and falling wages, not excessively high minimum or other
administered wages, have reduced employment at the bottom tier of the wage distribution.
3. Are low wage workers low income workers? No one who advocates the minimum
wage wants to raise the pay of teenaged kids in upper income families at the expense of
lower income consumers. If the result of an effective minimum is that Harvey Poor pays
more for his hamburger so Melissa or Roderick Well-to-Do can earn more pocket money,
the minimum will be redistributive, but in a regressive direction. In chapter 9 of the book,
Card and Krueger show that currently many workers paid around the minimum are, in fact,
from low income families: one-third of workers whose wages were affected by the 1990 and
1991 increases in the minimum came from the bottom 10 percent of the earnings distribution.
The widening dispersion of wages has meant that more low skill young adults earn "teenage"
wages. Card and Krueger do not explore the distribution of consumer products that use
7
minimum wage type labor. I would expect lower income families to purchase more such
products, but I would also expect the differences in consumer spending patterns to be
modest.
4. How does the minimum fit with other economic policies? We all know that,
despite the valiant efforts of the Invisible Hand, at best we live in a second best world. The
effects of the minimum wage or of any other policy must be judged in the context of
numerous other policies and institutions. Many on both sides of the aisle in the Congress
favor Earned Income Tax Credits as a way to improve the economic well-being of low wage
workers. EITCs subsidize low wage employers. Minimum wages "tax" those employers.
The two policies would seem to complement one another. While no one has analysed the
quantitative interactions between these (and other) policies, my guess is that the minimum
looks better in the second best world in which we live than it does in most textbooks.
The bottom line question is:
5. What is a reasonable level of the minimum to redistribute income without risking
sizeable job loss?
Myth and Measurement - the new economics of the minimum wage makes a
convincing case that we have overestimated the dangers of job losses and that level of the
minimum that does more good than harm is probably much higher than many economists
have previously thought. The book shows as best as empirical economics can that 10%-20%
increases in the current U.S. federal minimum will not harm employment (much if at all). It
is properly cautious in extrapolating analysis of minimum in the range found in the U.S. to
potentially much higher minima. At some point, every SR economist becomes a BR
8
economist. A 100% increase in the minimum? A 200% increase? I know (sadly) that if
you raise my pay to rock star levels, my employers will disemploy me, tenure and my
singing talents notwithstanding. Still, if within plausible ranges, the minimum has little
effect on employment, per Card and Krueger; if low wages reduce employment through
supply responses, per Juhn, Murphy, and Topel; and if earnings inequality has become a
major national problem, as we all recognise, policy debate should concentrate on the question
of "what level of the minimum can redistribute income to low paid workers without serious
job loss?" We do not have too many weapons in the policy arsenal to raise the pay of low
wage workers. The book has raised my assessment of what level of minimum wage could
redistribute income without causing job losses. I predict it will do the same to yours.
9
References
Brown, Charles 1989 "Minimum Wage Laws: Are They Overrated?" Journal of
Economic Perspectives, 20: 487-528
Gregory, Robert and R.C. Duncan "Segmented Market Theories and the Australian
Experience of Equal Pay for Women" Journal of Post-Keynesian Economics, Spring 1991
Juhn, Chinhui, Murphy, Kevin M. and Topel, Robert "Why Has the Natural Rate of
Unemployment Increased Over Time?" Brookings Papers on Economic Activity 1991 (2), 75-
142.
Machin, Steve and Alan Manning. 1994 "The Effects of Minimum Wages on Wage
Dispersion and Employment: Evidence from the U.K. Wage Councils" Industrial and Labor
Relations Review 47: 319-329
Neumark, David and W. Wascher "Employment Effects of Minimum and
Subminimum Wages: Panel Data on State Minimum Wage Laws" Industrial and Labor
Relations Review vol 46 no 1, 1992, pp 55-81.
Topel, Robert "What Have We Learned from Empirical Studies of Unemployment
and Turnover?" American Economic Association. Papers and Proceedings, May 1993, PP
110-115
Wellington, A. "Effects of the Minimum Wage on the Employment Status of Youth:
An Update" Journal of Human Resources, vol 26, no 1, 1991, pp 27-46
10
November 7, 1994
** DRAFT MEMORANDUM **
The Administration promised to revisit the minimum wage after the impact of health care reform
on the low-wage labor market was resolved. It now appears that health care reform in the next
session of Congress likely will have only a modest impact on labor costs for low-wage
employees, so this seems an appropriate time to return to the minimum wage issue. This
memorandum provides background on the minimum wage, a political analysis of the minimum
wage, an analysis of substantive arguments for and against a minimum wage hike, and policy
options.
I. Background
The Federal minimum wage is currently $4.25 an hour. The minimum wage was last
increased in April 1991 from a level of $3.80 in 1990. The minimum wage had been frozen at
a nominal level of $3.35 per hour from 1981 to 1990. Figure 1 shows the value of the minimum
wage adjusted for inflation each year in constant 1993 dollars. The real value of the minimum
wage is now above its value from 1988 to 1990 but is below its value for every other year going
back to 1955. The recent expansion in the EITC, while very helpful, does not offset the erosion
in the value of the minimum wage. A worker in a full-time, full-year job earning the minimum
wage would generate a family income below the poverty level even for a family of two and
substantially below the level for larger families.
The low value of the minimum wage is reflected in the most recent Census data on
poverty. Data for 1993 show that even in the current recovery the poverty rate has risen, and the
bottom of the income distribution has lost ground. In 1993, some 16.2 percent of full-time, year
round workers earned too little to lift a family of four out of poverty; in 1979 only 12 percent
of full-time, year round workers were in this situation.
The minimum wage has two important purposes. First, the minimum wage raises the
bargaining power for the working poor who are not represented by unions and have low skills.
The minimum wage may also have a slight "ripple" effect, whereby wages of workers earning
somewhat more than the minimum are increased to maintain internal wage standards. As a result,
the minimum wage is an anti-poverty program. Although the minimum wage is not a targeted
policy (like the Earned Income Tax Credit), it still is a reasonably effective anti-poverty policy.
Thus, many observers criticize the minimum wage as anti-poverty program by arguing that many
of the beneficiaries are teenagers and other "secondary earners" from middle class families with
multiple earners. Nevertheless, most research shows that increases in the minimum wage
substantially increase the incomes of many low-income families and reduce the incident of
poverty.
The second purpose of the minimum wage is as a part of a minimal set of labor standards
to try to spur firms to create and maintain the high-performance workplaces necessary for a
strong economy. The minimum wage induces firms to train their workers and take a high-value
2
added/low turnover strategy it blocks the so called "low road" strategy of high turnover, high
vacancies, continual recruitment, and low training.
The standard criticism of the minimum wage is that it raises employer costs and reduces
employment opportunities for teenagers and disadvantaged workers. Recent research finds no
convincing evidence of significant adverse employment consequences of moderate increases in
the minimum wage. While a huge increase could have significant negative effects on
employment, moderate increases (e.g., $0.50 to $1.00 an hour) are not likely to do much to
reduce employment.
II. Political Issues
A. A Brief History of Minimum Wage Legislation
Since 1938, Congress has periodically amended the Fair Labor Standards Act to raise the
level of the minimum wage to almost half the average manufacturing wage every two to four
years. Every Democratic Administration since Franklin D. Roosevelt has raised the minimum
wage. The minimum wage has also increased under most Republican Administrations. In the
years between increases, the real value of the minimum was eroded by inflation, causing the
sawtooth pattern in the real value of the minimum shown in Figure 1. In 1977 Congress
amended the Fair Labor Standards Act to raise the minimum wage to $2.65 in 1978, $2.90 in
1979, $3.10 in 1980, and to $3.35 in 1981. Under President Reagan, the historical pattern of
periodic increases in the minimum was halted.
In March of 1987 Senator Kennedy and Representative Hawkins introduced legislation
to increase the minimum wage to $4.65 an hour by 1990. In September 1988, then-Vice
President Bush announced during the Presidential campaign that he could support an increase in
the minimum wage. Later that month, however, a Republican-led filibuster thwarted Kennedy
and Hawkins's effort to raise the minimum wage. The vote fell 5 votes short of reaching cloture.
In early March of 1989, Congress and President Bush again took up the issue of raising
the minimum wage. The Bush administration promised to veto any legislation that would go
beyond its proposal of raising the minimum to $4.25 per hour, with a "training wage" of $3.35.
On March 23, 1989 the House voted by a 248-171 margin to raise the minimum to $4.55 per
hour by 1991. The Senate followed the House on April 12, 1989 and voted 62-37 in favor of
the Senate minimum-wage increase bill. After conference, both houses of Congress approved
a bill to raise the minimum to $4.55 per hour in mid-May, 1989. The number of votes fell short
of the required number to override a Presidential veto, however. President Bush vetoed this
legislation in June 1989, and the override votes fell short of two-thirds.
Congress took up the minimum wage again in the Fall of 1989. In November 1989 the
House voted by a margin of 382-37 to increase the minimum wage to $3.80 on April 1, 1990,
3
Figure 1. Value of Minimum Wage in 1994 Dollars
The Real Minimum Wage
7
6.5
$6.32
6
$5.84
1994 Dollars
5.5
5
4.5
$4.25
4
3.5
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
Year
NOTE: Minimum Wage in 1994 CP-U-XI Dollars. The inflation rate for 1994 and 1995 is assumed to be 3.0 percent.
and to $4.25 on April 1, 1991, and to set a 60-day subminimum wage (15% less than the
minimum) for teenagers. The Senate passed identical legislation by a vote of 89-8 one week
later. President Bush signed this bill into law.
Because the federal minimum wage has not been increasd only twice in the last 15 years, many
states have enacted state minimum wages that exceed the federal minimum. New Jersey, for
example, has a $5.05 per hour minimum wage. Alaska, DC and Iowa also have minimum wages
above the Federal level.
Last year five bills were introduced in the House and Senate to raise or index the minimum
wage:
O H.R. 281 (Miller of California) -- Would index the minimum wage to the cost of living in the
same manner as Social Security benefits are indexed. Introduced January 5, 1993; referred to
Committee on Education and Labor.
O H.R. 692 (Sanders of Vermont; 49 Democratic cosponsors) -- Would increase the minimum
wage to $5.50 in 1994 and index to cost of living. Introduced January 27, 1993; referred to
Committee on Education and Labor.
4
O H.R. 3267 (Blackwell) -- Would increase the minimum wage to $7.00 per hour; referred
jointly to Committees on Appropriations and Education and Labor.
O H.R. 3278 (Sabo of Minnesota; 7 Democratic cosponsors) -- Would increase the minimum
wage to $6.50 and deny employers a tax deduction for excessive compensation (more than 25
times the lowest compensation paid any other employee). Introduced October 13, 1993; referred
jointly to Committees on ways and Means and on Education and Labor.
O S. 562 (Wellstone of Minnesota) -- Would increase the minimum wage incrementally 1994
through 1997, and index it to one-half the average hourly earnings for private, nonagricultural
workers in 1998 and thereafter. Introduced March 11, 1993; referred to Committee on Education
and Labor.
Support for a minimum wage increase in the next Congress is likely to be weaker than it was in
1989, or than in the curent Congress. For example, many Republicans supported the 1989
legislation in large part because President Bush provided them cover. Also, the minimum had
not increased in 8 years in 1989, and was at an even lower real value than it is today. Finally,
the next Congress is likely to be more Republican and shift further to the right than the current
Congress. Republicans traditionally oppose minimum wage increases. When the Republicans
took over the New Jersey state legislature in 1992, for example, their second action (after
repealing the increase in the state sales tax) was to roll back an increase in the state minimum
wage.
Another issue likely to surface in the next Congress is the Unfunded Mandates bill. This bill
would require CBO to perform a cost-benefit study of all mandates on public and private entities.
If this bill passes, it likely will make future increases in the minimum wage more difficult. The
prospect of this bill passing may raise the priority of a minimum wage increase.
We also believe that on the merits a stronger argument can be made for a minimum wage
increase now than was the case in 1989. For one thing, the poverty rate is higher now than it
was in 1989, and a minimum wage increase is expected to reduce poverty. In addition, recent
research casts doubt on the importance of the traditional drawback to a minimum wage increase,
supposed adverse employment effects.
Finally, in Putting People First and during the campaign, candidate Clinton promised to increase
and then index the minimum wage to prevent a decline in the purchasing power of the minimum
wage. Seeking a minimum wage increase at this time will enable the President to try to deliver
on another campaign promise.
There is no opportunity to increase the minimum wage in the current Congress. The Congress
is reconvening only to consider the GATT.
5
B. Key Constituency Groups
The AFL-CIO has voiced its support for a minimum wage increase. The AFL-CIO has lost on
several issues that it feels passionately about; most importantly health care reform, NAFTA,
striker replacement, and OSHA reform. Although a minimum wage increase is not on the very
top of the AFL-CIO's agenda at this time, it is an important issue to unions, especially the SEIU.
Support for a minimum wage increase will definitely help with the AFL-CIO.
Other constituency groups that would favor a minimum wage increase include women's groups
(women currently make up 66% of minimum-wage earners) and civil rights groups.
Public opinion polls continually show considerable support for a minimum wage hike. For
example, a 1992 Time-CNN poll found that 74% of the public favored raising the minimum wage
to make work a more attractive alternative to welfare. A 1993 poll for NBC News and the Wall
Street Journal found that 64% of the public favored raising the minimum wage and 31% opposed.
Other opinion polls have found that a majority of Republicans as well as Democrats favor a
minimum wage increase. Moreover, a 1992 Gallup poll found 75% of the public supported
indexing the minimum wage. A majority of the public even supports a minimum wage hike if
they are first told that a minimum wage rise will cost some people their jobs. Finally, polls
generally find that support for a minimum wage increase is strongest among women and
minorities.
Balancing this support for a minimum wage hike is a somewhat better organized
opposition than was the case in 1989. The NFIB, for example, has strongly opposed past
minimum wage increases. Many of those groups opposed to a minimum wage increase have
already demonstrated their influence in opposing health care reform. In addition, conservative
think tanks will oppose a minimum wage increase on ideological grounds. Finally, some New
Democrat groups may oppose a minimum wage increase.
III. Research Findings
Adverse Employment Effects?
The potential effect of a minimum wage increase on employment has been the principal
argument raised in opposition to such an increase. While the potential employment effects of a
minimum wage increase surely need to be considered, the weight of the empirical evidence
suggests that the effects of a moderate raise from its current level are likely to be negligible.
This conclusion is based on a variety of recent studies employing different methodologies; the
studies examined the effects of raises in the federal minimum wage both across the nation and
in particular states, as well as the effects of raising state minimum wages above the federal level.
For example, studies of the federal minimum wage examined the effects of a 90 cent
increase in two increments over a two-year period. One of the state studies examined the effects
6
of New Jersey recently raising its state minimum wage by 80 cents, from $4.25 an hour to $5.05
an hour; another examined the effects of California increasing its minimum wage 90 cents from
$3.35 an hour in 1987 to $4.25 an hour in 1988 (which would equal $5.20 in 1993 dollars). All
of these studies found that the minimum wage increases did not reduce employment opportunities.
Some recent studies of raises in the minimum wage have found that it had a negative
effect on employment. These studies have been sponsored and widely circulated by hard-line
opponents to the minimum wage such as the Employment Policy Institute, a group funded by the
restaurant and hospitality industries. These other studies, however, have methodological flaws
that bias their results. For example, the most widely cited of these studies was conducted by
David Neumark and William Wascher. Their study, however, mistakenly assumes no teenagers
are simultaneously attending school and working, when this is in fact a common occurrence.
They also use a measure of the value of the minimum wage that skews their findings.
Most significantly, the time-series evidence that has traditionally been used to argue for
an adverse effect of the minimum wage on employment, no longer find a statistically significant
effect of the minimum wage if more recent data are used in the analysis.
Richard Freeman of Harvard University -- long considered one of the nation's preeminent
labor economists -- just completed a review of the studies of the employment effects of the
minimum wage. He concluded:
"At the level of the minimum wage in the late 1980s, moderate legislated increases did
not reduce employment and were, if anything, associated with higher employment in some
locales.
Studies based on employment across economic units such as states and counties yield
more disparate results. Most studies, however, reject the notion that the late 1980s-early
1990s increases had adverse employment effects, and the studies that find adverse effects
prior to those increases obtain small elasticities [meaning small employment effects] that
confirm the effectiveness of the minimum in redistributing wage income.
These studies do not suggest or prove that any increase in the minimum wage no matter
how large would have only desirable effects. But the outcomes of the studies suggest that the
labor market functions in a more complicated manner than has been assumed by those contending
that virtually any rise in the minimum wage results in a significant decrease in employment
levels. In particular, when the minimum wage is at especially low levels, as it is today, the
employment effects of a moderate increase in the minimum wage may be modest or negligible.
One theoretical explanation for why a minimum wage increase may not reduce
employment -- and may actually increase employment -- is that many low-wage employers
currently operate with many vacancies and high turnover. Rather than voluntarily raise pay for
all their workers, these employers choose to continually recruit and train workers. Modestly
raising the minimum wage would enable these firms to fill their vacancies and lower turnover.
7
(It would also cut into the firms' profits, which is why the firms don't raise wages on their own.)
On the other hand, if the minimum rises too much, the firms may not want to fill their vacancies.
In current employment situation wages have been stubbornly stagnant for low-wage workers,
inspite of rising employment and recruiting pressures. For example, the help-wanted index is
near its five-year high, yet real wage rates show no sign of increase at the bottom of the income
distribution. These conditions make it unlikely that a minimum wage increase will substantially
harm employment.
It should also be noted that employment has grown well ahead of schedule in the last 20
months. The President promised 8 million net new jobs in 4 years, and so far the economy has
grown by 4.62 million jobs. If job growth continues at this pace, employment will increase by
over 11 million jobs in 4 years. Under the most pessimistic estimates, a 50 cent increase in the
real value of the minimum wage will reduce employment growth by 70,000 jobs -- and still
increase total payroll for minimum-wage workers. The risks of reducing job growth at this time
are much less than they were 2 years ago. Furthermore, the jobs discussion has already turned
to the issue of job quality. Raising the minimum wage will help to improve the average wage
in the low-wage sector, which has had declining pay for the last 15 years.
Income Distribution
The stereotype that most minimum-wage workers are teenagers from middle class families
is false. Two-thirds of minimum-wage workers are adults. The dramatic changes in the wage
structure the last 15 years (i.e., the rise in wage dispersion) has meant that many prime-age
workers are earnings wages at, or near, the minimum wage. Moreover, recent data indicate that
this trend has continued. Thus, in the current economic environment an increase in the minimum
wage has the potential to reach more low-income families than in the past.
A great deal of research now suggests that the minimum wage effectively raises the
income of low-wage workers. The average minimum-wage earner brings in 40% of his or her
family's labor income. Research indicates that the states that were more heavily affected by the
1990 and 1991 minimum wage increases experienced greater reduction in poverty and faster
income growth of low-wage workers. Moreover, several researchers have concluded that the
decline in the real value of the minimum wage is a major cause for the rise in wage dispersion
in the 1980s, especially for women.
Subminimum Wage
The youth subminimum wage or training wage that was enacted in 1989 for a three year
period has now expired. Much evidence suggests that employers very rarely took advantage of
the subminimum wage. Indeed, the low use of the subminimum wage makes employers claims
that the minimum wage increases caused major problems suspect. Nevertheless, if allowing a
subminimum or training wage softens opposition to a minimum wage increase, it may be worth
8
the trade. When the subminimum wage expired, business groupd did not complain.
EITC
In designing the parameters of the EITC expansion, the combined value of full-time
minimum wage earnings, plus EITC benefits, plus food stamps, and minus payroll taxes, was
compared to the poverty line. The proposed EITC increase for families with two or more
children was set at a level that would lift a family of four with a full-time minimum wage worker
out of poverty.
The Administration's EITC proposal, incorporated in the House bill, would attain this
objective virtually precisely. But two of the assumptions made in the calculation should be
highlighted. First, to reach the objective, the calculation assumed that the value of the minimum
wage would equal $4.50 an hour in 1994 dollars.¹ Second, the assumption of the receipt of food
stamps -- valued at more than $3,000 for a family of four with minimum wage earnings -- is
often unwarranted. Substantially less than half of working poor families receive food stamps.
All this suggests there is virtually no room to maneuver in terms of cutting back our
proposed expansions in the EITC. Nevertheless, the Senate reduced the proposed increases in
a variety of ways. For example, the Senate provisions make it somewhat less likely that families
with full-time workers will be lifted out of poverty. A family of four with two children would
receive a maximum EITC benefit that would be $56 lower than under the House bill. Such a
family with a full-time minimum wage worker would therefore fall $56 further below the poverty
line.
The Senate's elimination of the new, small EITC for childless workers also is very
troubling. Poor childless workers would no longer receive an offset for the new energy taxes
they may have to pay. In addition, more than any other group of taxpayers, poor childless
workers have been hit hardest by tax increases since 1980. Several of these increases contained
regressive tax provisions that included an EITC offset for working poor families with children,
but did not include an offset for poor workers without children. As a result, the overall federal
tax burden of the poorest fifth of households without children has risen a dramatic 38 percent
since 1980.
The minimum wage has some advantages over the EITC for certain populations. First,
the EITC is only claimed by about 80% of eligible families. Second, the EITC is generally paid
in a lump sum, whereas the benefits of a minimum wage hike are enjoyed with every pay check.
Third, for low-wage workers the EITC may have the inadvertent effect of causing a labor supply-
increase, which in turn depresses wages. The minimum wage will elevate wages, thus helping
to offset this undesirable side effect. Thus, the minimum wage should be viewed as a
¹A minimum wage level of $4.50 an hour in 1994 is consistent
with indexing the wage floor at its 1992 level of $4.25 an hour.
9
complement to the EITC, rather than a substitute.
IV. REFORM OPTIONS
Indexation
Arguments for and against indexing the minimum wage include the following:
For
*
Would provide for small, predictable increases that businesses could adjust to relatively
easily.
*
Would prevent a possible unfunded mandates bill from
blocking future minimum wage increases.
*
Would provide a fixed level of support upon which other social policies could be
constructed.
*
Would be consistent with Administration's make work pay effort; otherwise, net income
of minimum wage earner could fall relative to inflation.
Against
*
Minimum wage might be fixed at a sub-optimal level (too high or too low), or might
be indexed to a series that moves to quickly or too slowly.
*
From a Congressional perspective, removes the minimum wage from the deliberative
process, undermining legislative oversight. Indexing did not prove popular during the last
minimum wage debate.
*
The concept of indexing wages or benefits has generally been declining in popularity.
If a decision is made to index the minimum wage, it would be sensible to index it to a
measure of wage inflation (e.g., the wage of the 25th percentile worker) rather than the general
consumer price index. Indexing to a wage measure would link the value of the minimum wage
more closely to labor market conditions -- minimum wage workers would share equally in
whatever wage gains are made from year-to-year. Note that wages have not been rising as fast
as the CPI in recent years, so indexing the minimum wage to the CPI could very well increase
the minimum wage at a faster pace than is justifiable. Using a wage of a low-wage earner would
ensure that the minimum wage does not move too far out of step with the wages of low skill
workers, if the shape of the wage distribution should change.
10
If the issue of indexing becomes the subject of debate, it is likely that traditional
supporters of a strong minimum wage (low-income organizations and unions) will advocate for
the oft-stated goal of indexing the minimum wage to half the average private nonsupervisory
wage. With the average hourly wage now equal to $10.86, half this standard would yield a
minimum wage of about $5.40. The arguments for scaling back from the 50 percent goal include
political constraints, the costs of health reform, and the additional support from the EITC.
Health Insurance Offset
A new option would be to provide employers with a credit against the minimum wage for
providing health insurance. For example, if the minimum wage is set at $4.75 per hour, and an
employer provides health insurance valued at $2,000 per year ($1 per hour), then the employer
would be allowed to pay $4.25 per hour (the current minimum wage).
For
*
This option will dovetail nicely with legislation to
press employers to expand health care coverage.
*
There is precedent for this type of an option since
employers may currently offset tips against the minimum
wage.
*
Relatively few minimum-wage employers who provide health
insurance will
probably take advantage of this option, just
like a tiny fraction of employers paid the subminimum wage.
*
Most employees would prefer to receive $4.25 per hour and
health insurance than $4.75 and no health insurance.
Moreover, government may save money from reduced medicaid
payments if employers take this option.
Against
*
It may be administratively difficult to verify employer costs of providing health
insurance.
Options for raising the minimum wage level
Presumably, the earliest that the Administration would present a minimum wage proposal
would be in January 1995, with any suggested increases not to go into effect until the latter half
of 1995 or the beginning of 1996.
11
Option 1. No raise, defer decision.
For
*
Legislative agenda is already crowded; introducing minimum wage bill could undermine
other key initiatives.
*
The new Congress may be so conservative to make a minimum wage increase out of
the question.
Against
* A delay would make it extremely likely that a minimum
wage increase will not be enacted before 1996.
*
Minimum wage would remain at historically low level. Minimum wage workers would
continue to face falling real earnings.
*
In the short run, the Administration would not achieve its make work pay goal.
*
There are few other policy options that would increase the pay of low-wage workers
as quickly, or as surely, as a minimum wage increase.
Option 2. Index the minimum wage at $4.50 an hour in 1994 dollars. This level could
be justified in two ways. First, the level is consistent with indexing the wage floor since 1992,
when the commitment to index the minimum wage was first made. Second, like health care
reform, the argument could be made that the net increase in the minimum wage would be more
than 25 cents, with some of the increase being paid out in increased health care coverage.
For
*
Would meet campaign pledge to index the minimum wage. Would be consistent with
lifting a family of four with a full-time minimum wage worker out of poverty, once EITC
benefits and food stamps are counted.
*
A 25 cent increase would be well within the range of increases in the minimum wage
that studies suggest would have no impact on employment, even considering potential
increases in health care costs.
12
Against
*
A 25 cent increase would make up only a small fraction of the ground the minimum
wage has lost to inflation. Indexing the minimum wage at $4.50 an hour would lock into
law a minimum wage level 19 percent below its average real value in the 1970s.
*
Similarly, a 25 cent increase would be an increase of six percent from its $4.25 level.
Every other minimum increase ever enacted was at least 24 percent. (In most cases, the
increases were spread out over several years.)
*
While opposition to a 25 cent increase would be somewhat less vehement than
opposition to a larger increase, it would likely still be intense. Particularly if indexing
were dropped out of the bill during the legislative process, this proposal could lead to a
high-stakes political struggle over a relatively minor change in policy.
Option 3. Increasing the minimum wage to a value of $4.75 an hour in 1994 dollars
through a series of two increases (e.g., 1995 and 1996), and then index. For example, two
increases of 40 cents each could be proposed, with the second increase occurring January 1996,
yielding a minimum wage of $5.05 an hour. A minimum wage of $5.05 an hour in 1996 is
equivalent to a minimum wage of about $4.75 an hour in 1994 dollars. (In other words, a
proposal to increase the minimum wage to $4.75 an hour in 1994 and then to index it would
yield a minimum wage of about $5.05 an hour in 1996.)
For
*
Although this proposal would result in a more significant increase in the minimum wage
than the other proposals, it can be viewed as moderate.
*
If the minimum wage were to equal its average value of the 1970s in 1996, it would
equal about $5.90 an hour, after adjusting for inflation. A minimum wage of $5.05 an
hour in 1996 would be 85 cents -- or 14 percent below its average real value in the
1970s.
*
The New Jersey minimum wage is $5.05 per hour, and has not had any noticeable
effect on employment.
*
The amount of the increase and the resulting value of the minimum wage, after
adjusting for inflation, would still fall within the range of recent changes in the minimum
wage which were not associated with negative employment effects (the combined effect
would fall towards the outside edge of the range).
13
Against
*
Some will argue that this is a big, not a moderate, jump in the value of the minimum
wage. The proposal will likely draw strong opposition.
*
The argument will be made that, in conjunction with health care reform, the proposal
will be burdensome to small businesses and will impede employment growth.
14
Nel hourly pay, 1993 dollars.
$6.5
$6
$5.79
$5.5
$5.14
$5
$4.5
$4
$4.13
$3.5
$3
1975
1978
1981
1984
1987
1990
1993
1996
Year
Assumes family with 2 children.
Figures for 1993 on are projections.
Figure 2. Net real hourly pay for a full-time minimum wage
earner with two children, accounting for EITC and payroll taxes,
1975-1997
Misc:
** uchitelle's october 4th article suggests that co's are having trouble filling job vacancies.
For example, increasing the minimum wage to $4.75 an hour in 1994 dollars would fall well
within the range of increases examined by the above studies finding no adverse effect on
employment.
*
Similarly, changes in the minimum wage have not kept pace with changes in the wages
of other workers in the economy. In the 1950s and the 1960s, the minimum wage
averaged more than half of the average wage of private nonsupervisory workers. In the
1970s, it averaged 46 percent of the average wage. Currently, it equals 39 percent of the
average wage. (See Table 1.)
15
Table 1. Historic value of the minimum wage
Minimum wage as a percent
Purchasing power
of the average private
in 1993 dollars
nonsupervisory wage
1960s avg.
$5.35
52.2%
1970s avg.
5.43
45.8
1980s avg.
4.67
40.4
Current
4.25
39.3
*
Absent any change in the minimum wage, for full-time year-round minimum wage earners
living in families with two or more children, the combined value of minimum wage
earnings and the EITC, minus payroll taxes, would be less than the average combined
value in the 1970s. This can be seen by examining Figure 2, which calculates the net
hourly pay for a minimum wage worker, when the EITC is added in and the payroll tax
is subtracted out. The net hourly pay of a minimum wage worker in 1996 will be $5.14,
or below the worker's net hourly pay of $5.79 in 1979 (both amounts are expressed in
1993 dollars).²
*
In addition, since low-income families with less than two children qualify for a smaller
EITC than workers with two or more children, minimum wage earners with less than two
children already have significantly lower net incomes than in the 1970s.
The EITC expansion was designed to ensure that the combined value of full-time
minimum wage earnings, plus EITC benefits, plus food stamps, minus payroll taxes, would lift
a family of four out of poverty. To reach this objective, the calculation assumed that the value
of the minimum wage would equal at least $4.50 an hour in 1994 and would be indexed to
inflation. (The assumption of the receipt of food stamps -- valued at more than $3,000 for a
family of four with minimum wage earnings -- is often not applicable. Less than half of working
2
In 1993 inflation-adjusted dollars. the value of the minimum wage was $5.67 per hour in 1979. For a
full-time minimum wage worker, the hourly value of the EITC was $.47. and the hourly cost of payroll taxes was
$.35. yielding a net hourly wage of $5.79. If the minimum wage remains unchanged from current law. in 1996.
its real value will equal $3.88 an hour, the corresponding EITC benefit for a family with two or more children
will be $1.55 and payroll taxes will be $.30. yielding a net hourly wage of $5.14.
3
The increase in the EITC is not a complete offset to the decline in the minimum wage for several other
reasons. One is the delivery of EITC payments is usually not timely; virtually all EITC recipients receive their
benefits in one lump sum payment when they file their taxes. (Treasury. HHS. and Labor Department officials
are involved in the welfare reform effort to improve the delivery system. but it is a thorny problem that is
unlikely to be fully addressed.) Not only is the minimum wage delivered in a more timely manner for struggling
families with each paycheck a combined minimum wage/EITC approach reflects a balanced sharing of
the burden of "making work pay" between the public and private sectors.
16
poor families now receive food stamps. The reforms made in the reconciliation bill will increase
participation somewhat but will have no effect on the standard food stamp grant for most of the
working poor.)
* An unintended effect of EITC is labor supply shifts out, depressing wages.
DETERMINED TO BE AN
ADMINISTRATIVE MARKING
INITIALS: JAM DATE: 11/15/17
MEMORANDUM
2016-0531-F
DATE:
AUGUST 29, 1995
SUBJECT:
MINIMUM WAGE EXECUTIVE ORDERS
CONFIDENTIAL
Summary
As requested, we have prepared a draft executive order that would prohibit
government agencies from doing business with federal contractors that pay below $5.15 per
hour.
Attached to this memorandum are: (1) the draft executive order relating to federal
contractors and the minimum wage; (2) the press packet released by the White House on
February 3, 1995 accompanying your legislative proposal to increase the minimum wage;
(3) an excerpt on the minimum wage from your May 19, 1995 speech for the 75th
Anniversary celebration of the Labor Department's Women's Bureau; and (4) a legislative
background brief describing how members of Congress voted when the minimum wage was
last increased in 1989.
Message
*
The nation's leading economic problems are stagnant wages and declining real
incomes for working families.
*
The federal government should not contribute to the wage and income problems
facing working families.
*
The President has presented Congress with a legislative proposal to increase the
minimum wage 90 cents from its current $4.25 per hour. This initiative would assure that
people who work hard and play by the rules receive a living wage of $5.15 per hour.
Congress has refused to act.
*
If Congress won't act, President Clinton will. The President will use his executive
authority to guarantee a living wage --- $5.15 per hour --- for everyone working in firms that
do business with the federal government.
*
At a minimum, the federal government should not do business with corporations
that pay workers less than a living wage.
1
Discussion
I.
Increasing the Minimum Wage for Employees of Federal Contractors
A. How the Executive Order Would Work
This draft executive order would establish that "[i]t is the policy of the executive
branch in procuring goods and services that
federal agencies shall contract with
companies that pay their employees no less than $5.15 an hour." This policy would be
enforced in two ways. First, every government contract entered into after the effective date
of the executive order (the date you sign it) would include a clause in which the contractor
agrees to pay a minimum wage of $5.15 per hour. Second, any contractor that pays below
$5.15 could have all of its government contracts terminated. The executive order does not
provide for any exceptions.
The Secretary of Labor would enforce and administer the order. If the Secretary
finds that a contractor is not paying a minimum wage of $5.15, he would transmit a finding
to the heads of contracting agencies or departments who, in turn, must terminate all contracts
with the contractor unless the contractor pays all of its employees at least $5.15 per hour
within a time specified by the Secretary.
Like the "striker replacement" executive order, this draft order is premised on the
authority delegated to the President by Congress in the Federal Property and Administrative
Services Act of 1949 "to provide for the Government an economical and efficient system for
procurement and supply." Some economic theories suggest that increasing the wages of
low-wage workers will result in an increase in those workers' productivity and, in turn, to
increases in efficiency that will offset the cost to federal contractors of the higher wages.
Thus, the federal government would, according to these theories, procure its goods and
services from more efficient, more economical federal contractors.
B. Possible Variations in this Executive Order
(1) Use CEO Pay as a Trigger: The executive order could be made to apply only to
federal contractors that pay their chief executive officer (or other top executive) more than
100 times the lowest wage paid to their employees. This approach would dramatize the
growing wage disparity in our economy. On the other hand, it undermines the central moral
argument which supports raising the minimum wage: every worker is entitled to a living
wage, regardless of who employs them or how much others in their organization earn.
Further, using a CEO pay trigger may weaken the nexus to economical and efficient
procurement, the legal prerequisite for presidential action of this type.
(2) Use Profits as a Trigger: The executive order could also be made to apply only to
federal contractors that earn above average profits. This approach would juxtapose the huge
economic returns being yielded by capital (e.g., the soaring stock market) with the decline in
2
middle and working class family incomes. On the other hand, it suffers from both of the
infirmities outlined above (i.e., undermining the moral argument and attenuating the
procurement nexus), plus it would require an administrative apparatus to decipher each
contractors' profits.
C. Arguments For and Against the Executive Order
(1) Pro: This draft executive order will demonstrate your commitment to increasing
working families' wages (particularly for the lowest wage workers) and distinguish you from
a congressional majority that refuses to even consider your legislative proposal to increase the
minimum wage. The minimum wage has fallen 27% in real terms since 1979 and, without
adjustment, will fall to its lowest real value in forty years in 1996. It is arguable that the
growing disparity in family incomes and wealth is the most pressing issue for middle and
working class families. This executive order would make your moral position clear --- you
will not allow the federal government to do business with any company that contributes to
declining real wages for low-wage workers.
(2) Con: This executive order is premised entirely on economic theory, much of
which will be difficult to explain in simple terms to the public, that is outside the mainstream
of scholarly economic thought; accordingly, it is unclear whether reliable third parties will
validate the arguments set forth in the preamble. Further, it is unclear whether theory alone
is adequate to support an executive order. Even accepting the theories as true, it is also
unclear whether the nexus between a minimum wage increase and efficient and economical
procurement is sufficiently close to pass judicial scrutiny.
Preliminary research has not disclosed any executive order, outside the context of
President Roosevelt's extraordinary powers during World War II, that directly sets wages for
employees of federal contractors; that is, this executive order could be unprecedented. The
closest analogy may be President Carter's Executive Order No. 12092 which required federal
contractors to certify that they were in compliance with voluntary wage and price guidelines
established by the President's Council on Wage and Price Stability. Finally, this executive
order could lend support to attacks that President Clinton and the Democrats want big
government. A slippery slope argument is easily made: "If Bill Clinton can require federal
contractors to pay a higher minimum wage, is he going to require a pay increase for all
workers? Will he require all federal contractors to follow his health plan? To finance
abortions through their health plans?"
(3) Likely Constituency Responses: The labor movement and other advocates for low-
wage workers will likely support the executive order. Federal contractor groups and
representatives of the business community (e.g., the Chamber of Commerce, the National
Association of Manufacturers), as well as the Republican congressional majority, will oppose
the executive order. Since a substantially larger group of federal contractors will be affected,
it is reasonable to expect a much more vigorous negative response from the business
community than the striker replacement executive order evoked. Litigation and congressional
3
action (e.g., efforts to overturn the executive order, appropriations riders blocking
enforcement of the order) will likely result.
D. The EO's Costs Are Difficult to Estimate
A very rough estimate of the costs of the executive order suggests that it will cost
federal contractors not more than $2.1 billion per year. Please note, however, that the data
needed to make a precise estimate of the cost of the minimum wage executive order are not
available. Estimates of worker wages and the number of workers involved do, however,
permit this crude projection.
The assumptions employed to reach the above estimate likely bias the estimate
upward. First, many federal contractors (e.g., construction, service) are required to pay a
prevailing wage above the minimum wage by the Davis-Bacon Act and the Service Contract
Act. Second, federal contractors' firms tend to be larger and, as a result, may have a
smaller percentage of minimum wage workers than firms in the economy as a whole.
Accordingly, the total number of workers affected by the executive order is probably smaller
than that assumed in the calculations to reach the above estimate. Certain structural changes
to the executive order (e.g., adding a threshold, narrowing the definition of "federal
contractor") would further reduce the number of workers covered and the commensurate
costs.
On the other hand, this estimate does not take into account any "ripple" effect that
minimum wage increase might have on the wages of workers that currently earn $5.15 or
slightly more. The ripple effect would tend to increase the costs of the executive order to
federal contractors.
II.
Two Approaches to Announcing the Executive Order
Should you decide to proceed, you should consider two approaches to announcing the
executive order.
You could announce the executive orders in a speech such as your forthcoming
address to the Alameda Central Labor Council's Labor Day Picnic or radio address and
then sign the order soon before, the same day, or soon thereafter. This approach gives the
White House control over timing and press arrangements. It also provides an opportunity to
brief potential supporters without tipping off opponents. On the other hand, it could inspire
congressional retaliation in the appropriations/reconciliation/debt ceiling process.
Or, you could announce in a speech or radio address that you are giving Congress a
90-day (or until Christmas or New Year's Eve) deadline before which it must enact your
proposed 90-cent increase in the statutory minimum wage. If it does not act by the time the
deadline is reached, you would issue the executive order. This approach puts the onus
4
squarely on Congress' shoulders. It also allows you to wield all of your available authority
to keep the minimum wage from falling to its lowest real value in 40 years (which it will in
1996 if there is no adjustment). On the other hand, this approach allows opponents time to
organize and, possibly, to seek judicial intervention. It also offers words when bold action
might send a stronger and clearer message.
Attachments
5
DRAFT 4
August 25, 1995
ENSURING THE ECONOMICAL AND EFFICIENT ADMINISTRATION AND
COMPLETION OF FEDERAL GOVERNMENT CONTRACTS
PREAMBLE
Some economic theories suggest that requiring federal
contractors to pay a higher minimum wage will lead to increases
in efficiency that will offset the cost to federal contractors of
the higher wage. The minimum wage has fallen 27% in real terms
since 1979 and, without adjustment, will fall to its lowest real
value in forty years at the end of 1996. Meanwhile, labor
productivity has increased 17% since 1979.
These theories suggest that the productivity of low-wage
workers is depressed when the minimum wage falls significantly in
real terms. These conditions can lead to greater levels of
"shirking" (i.e., reduced efforts by workers), higher turnover,
lower morale, and longer periods in which needed jobs remain
unfilled. Raising the minimum wage may lead to efficiency gains
among federal contractors that employ low-wage workers by
reducing shirking, lowering turnover, increasing morale, and
reducing the periods of time during which needed jobs remain
unfilled. In sum, productivity is lower when workers are paid an
obsolete minimum wage and, as a result, the federal government
receives lower quality, less reliable, and less timely goods for
each taxpayer dollar. By paying a higher wage to low-wage
workers, federal contractors will increase worker productivity.
The federal government will procure its goods and services from
more efficient, more economical federal contractors.
The market may not address this problem on its own. The
problems of turnover, shirking, low morale, and extended job-slot
vacancies likely result from a minimum wage which is too low to
attract new workers and retain incumbent workers. However,
employers cannot lure a new worker into a particular job with a
higher wage without giving everyone else in that job a pay
increase. Thus, in the absence of a requirement that they pay a
higher wage, employers choose lower levels of employment and
output rather than increasing the wages paid to all of their low-
wage workers.
NOW, THEREFORE, to ensure the economical and efficient
administration and completion of Federal Government contracts,
and by the authority invested in me as President by the
Constitution and the laws of the United States of America,
including 40 U.S.C. 471 and 486(a) and 3 U.S.C. 301, it is hereby
ordered as follows:
Section 1: It is the policy of the executive branch in procuring
goods and services that, to ensure the economical and efficient
administration and completion of Federal Government contracts,
Federal agencies shall contract only with companies that pay
their employees no less than $5.15 per hour of work. All
Government contracting agencies shall include in every Government
contract hereafter entered into the following provision:
"During the course of the contract the contractor agrees
that all employees of the contractor will be paid no less
than $5.15 an hour.'
Sec. 2. (a) The Secretary of Labor ("Secretary") may investigate
any Federal contractor to determine whether the contractor is
paying any of its employees less than $5.15 per hour of work.
(b) The Secretary shall receive and may investigate
complaints that the contractor is paying any employee less than
$5.15 per hour of work.
(c) The Secretary may hold such hearings, public or
private, as he or she deems advisable, to determine whether any
contractor is paying any employee less than $5.15 per hour of
work.
Sec. 3. (a) When the Secretary determines that a contractor has
paid any employee less than $5.15 per hour of work, the Secretary
may make a finding that it is appropriate to terminate the
contract for convenience. The Secretary shall transmit the
finding to the head of any department or agency that contracts
with the contractor. All Government contracts with the
contractor shall be immediately terminated unless the contractor
commences within a time specified by the Secretary to pay all of
its employees no less than $5.15 per hour of work.
(b) Each contracting agency shall cooperate with he
Secretary and provide such information and assistance as the
Secretary may require in the performance of the Secretary's
functions under this order.
Sec. 4. (a) The Secretary shall be responsible for the
administration and enforcement of this order. The Secretary may
adopt such rules and regulations and issue such orders as may be
deemed necessary and appropriate to achieve the purposes of this
order.
(b) The Secretary may delegate any function or duty of the
Secretary under this order to any officer in the Department of
Labor or to any other officer in the executive branch of the
Government, with the consent of the head of the department or
agency in which that officer serves.
Sec. 5. This order is not intended, and should not be construed,
to create any right or benefit, substantive or procedural,
enforceable at law by a party against the United States, its
agencies, its officers, or its employees. The order is not
intended, however, to preclude judicial review of final agency
decisions in accordance with the Administrative Procedure Act, 5
U.S.C. 701 et seq.
Sec. 6. This order is effective immediately.
THE WHITE HOUSE
PRESIDENT CLINTON ANNOUNCES INCREASE IN MINIMUM WAGE
Friday, February 3, 1995
To reward work in an economy that in 1994 saw the best job growth in a decade,
President Clinton will today announce his proposal to raise the minimum wage to $5.15 an
hour over two years -- through two 45 cent increases.
This news comes in the midst of more good news today for the economy under the
Clinton administration. This morning, the Department of Labor reported that more than 6
million jobs have been created since President Clinton took office. In addition, the
unemployment rate has dropped 20 percent to date under President Clinton.
A fact sheet and charts on the President's minimum wage proposal are attached.
House Minority Leader Richard Gephardt (D-MO) will open the announcement in the
Rose Garden today, followed by Senate Minority Leader Tom Daschle (D-SD). The Vice
President will then speak and introduce the President for his remarks.
-30-30-30-
REWARDING WORK: THE CASE FOR INCREASING THE MINIMUM WAGE
The President's proposal would increase the minimum wage from $4.25 to $5.15 over two years,
through two 45 cent increases. The last increase, passed by an overwhelming, bipartisan vote
in 1989, and implemented in 1990 and 1991, was also a 90 cent increase in two 45 cent stages.
For a full-time, year-round worker at the minimum wage, a 90 cent increase would raise yearly
income by $1,800 -- as much as the average family spends on groceries in over 7 months.
MAINTAINING THE HISTORIC VALUE OF WORK: If the minimum wage were to stay at its current
level of $4.25, it would fall to its lowest real level in 40 years. Indeed, the real value of the minimum
wage is now 27% lower than it was in 1979, and has fallen 54 cents in real value since its last increase
in April 1991. The first half of the President's 90 cent proposal simply restores the minimum wage to its
value at the time of the last increase.
RAISING THE MINIMUM WAGE PRIMARILY HELPS ADULT WORKERS MOST OF WHOM
RELY ON THEIR MINIMUM WAGE JOB TO SUPPORT THEIR HOUSEHOLDS: Nearly two-thirds
of minimum wage workers are adults (64%); over one-third of minimum wage workers (39%) are the sole
breadwinners in their families; and the average minimum wage worker brings home half of his or her
family's earnings. Thus, a rise in the minimum wage is a significant boost to the standard of living of
millions of households.
REWARDS WORK OVER WELFARE: The minimum wage increase provides another crucial measure
to reward work and ensure that there is a strong incentive to choose work over welfare.
NEARLY 11 MILLION WORKERS WOULD BENEFIT FROM THE PRESIDENTS PROPOSAL TO
INCREASE THE MINIMUM WAGE: Nearly 11 million workers, paid by the hour, earn between $4.25
and $5.14. Research indicates that an increase in the minimum wage to $5.15 could have a "ripple" effect
on the couple million workers who earn within 50 cents of the new minimum wage.
EMPIRICAL EVIDENCE SHOWS THE PRESIDENTS PROPOSAL CAN INCREASE WAGES
WITHOUT COSTING JOBS: Over a dozen empirical studies have found that moderate increases in the
minimum wage do not have significant effects on employment. These studies include state-specific
research that shows that large state increases in the minimum wage did not result in significant job
impacts. As Nobel Laureate Robert Solow stated: "[T]he evidence of job loss is weak. And the fact that
the evidence is weak suggests that the impact on jobs is small."
A 90 CENT INCREASE IN THE MINIMUM WAGE WILL LIFT A FAMILY OF FOUR OUT OF
POVERTY. The dramatic extension of the Earned Income Tax Credit helped lift hundreds of thousands
of working families out of poverty. Yet, by 1996, even the EITC is not enough to lift above the poverty
line a family of four making the minimum wage. With the 90-cent minimum wage increase, food stamps,
and the EITC, a family of four with a full-time, year round minimum wage worker would be lifted above
the poverty line.
THE LAST MINIMUM WAGE INCREASE -- ALSO 90 CENTS -- GARNERED STRONG
BIPARTISAN SUPPORT. In 1989, the minimum wage was passed by votes of 382 to 37 (135
Republicans) in the House, and 89 to 8 in the Senate (36 Republicans) and was supported by Senator Dole
and Representative Gingrich.
Appendix Table. Value of the Minimum Wage, 1955-1995
Minimum Wage
Value of the
Value of the
as a Percent of the
Minimum Wage,
Minimum Wage,
Average Private
Year
Nominal Dollars
1995 Dollars*
Nonsupervisory Wage
1955
$0.75
$3.94
43.9%
1956
1.00
5.16
55.6
1957
1.00
5.01
52.9
1958
1.00
4.87
51.3
1959
1.00
4.84
49.5
1960
1.00
4.75
47.8
1961
1.15
5.41
53.7
1962
1.15
5.36
51.8
1963
1.25
5.74
54.8
1964
1.25
5.67
53.0
1965
1.25
5.59
50.8
1966
1.25
5.43
48.8
1967
1.40
5.90
52.2
1968
1.60
6.49
56.1
1969
1.60
6.21
52.6
1970
1.60
5.92
49.5
1971
1.60
5.67
46.4
1972
1.60
5.51
43.2
1973
1.60
5.18
40.6
1974
2.00
5.89
47.2
1975
2.10
5.71
46.4
1976
2.30
5.92
47.3
1977
2.30
5.56
43.8
1978
2.65
6.00
46.6
1979
2.90
5.99
47.1
1980
3.10
5.76
46.5
1981
3.35
5.68
46.2
1982
3.35
5.36
43.6
1983
3.35
5.14
41.8
1984
3.35
4.93
40.3
1985
3.35
4.76
39.1
1986
3.35
4.67
38.2
1987
3.35
4.51
37.3
1988
3.35
4.33
36.1
1989
3.35
4.13
34.7
1990
3.80
4.44
37.9
1991
4.25
4.77
41.1
1992
4.25
4.63
40.2
1993
4.25
4.50
39.2
1994
4.25
4.38
n/a
1995
4.25
4.25
n/a
*Adjusted for inflation using the CPI-U-XI.
Source: Center or. Budget and Policy Priorities
The Real Minimum Wage
1960-1995
1994 Dollars
7
6.5
$6.29
6
$5.82
5.5
5
4.5
4
3.5
1960
1965
1970
1975
1980
1985
1990
1995
NOTE: Minimum wage is in 1994 CPI-U-XI Dollars. The inflation rate for 1995 is assumed to be 3.2 percent.
THE WHITE HOUSE
WASHINGTON
August 30, 1995
MEMORANDUM TO THE PRESIDENT
FROM:
LAURA TYSON
BO CUTTER
SUBJECT:
PROPOSED EXECUTIVE ORDER REGARDING MINIMUM
WAGE
We oppose an Executive Order requiring federal contractors to pay a minimum wage higher
than the statutory minimum wage. (Gene Sperling is out of the country, but we believe he
would agree.)
As a matter of process, we should not make as complex a decision as this one with as
little analysis as has been carried out to date.
The proposed Executive Order would further complicate federal procurement, raising
an additional barrier to working with the Federal Government, and would be
inconsistent with the overall direction of federal procurement policy. We have not
analyzed the long-run costs the Government would experience as firms shift away
from federal work.
The proposed Executive Order would raise federal procurement costs, and, therefore,
because budgets will not expand, may well result in lower employment derived from
federal procurement.
The proposed Executive Order raises a number of other detailed issues we have not
been able to analyze in this short a time period: How would the international
operations of affected firms be treated? Would firms cut back on benefits? Are we
legally able to terminate contracts?
Finally, the basic justification for such an Executive Order -- that it would increase
overall economic efficiency --is not supportable for a measure applying only to part
of the economy. Larry Katz, who is, as you know, a leading proponent of this
argument when applied to the whole economy, would probably publicly criticize it in
this case.
We think our current minimum wage position is right and a political winner. We do
not need to jeopardize our position with one action we have not thought through. If
you wish, we can initiate a process immediately to develop a more thorough analysis
and provide you with a better basis for a decision.