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Minimum Wages and the Supply and Demand for Labor

In a post that is a nice follow-on to this one about wages in trucking, Russel Roberts has a nice post about people making minimum wage:

According to Current Population Survey estimates for 2006, 76.5 million American workers were paid at hourly rates, representing 59.7 percent of all wage and salary workers.1 Of those paid by the hour, 409,000 were reported as earning exactly $5.15, the prevailing Federal minimum wage. Another 1.3 million were reported as earning wages below the minimum.2 Together, these 1.7 million workers with wages at or below the minimum made up 2.2 percent of all hourly-paid workers.

Correcting for higher state minimum wages, but also adjusting for illegal immigrants (who are a special case with super-low bargaining power) and factoring in salaried workers (who by law to be salaried have to be making much more than minimum wage) one still finds that less than 2% or less make minimum wage, about half of whom are under 25.  Roberts has a follow-on post with comments from Tim Worstall to say that even this number may be too high:

Unfortunately, on the page he’s taken his information from he’s missed one thing which makes his case even stronger.

Nearly three in four workers earning $5.15 or less in 2006 were employed in service occupations, mostly in food preparation and service jobs.

That’s your waitron units and barkeeps folks. And what do we know about people who do these sorts of jobs? Well, perhaps you have to have actually done them (as I have, everything from the graveyard shift in a Denny’s to tending bar around the corner from this guy’s place): they all make tips. In fact, so much so that there is (or at least used to be when that BLS report was prepared) a special minimum wage for those in such jobs, one lower than the official Federal minimum wage.

For example, way back when, the min. wage was $3.35 an hour. Waiters got $2.01. You didn’t really care because even serving pancakes at 5 am you made another $25-$30 a shift ($50-$150 in a decent place). Barkeeps got $3.35 plus tips.

The BLS numbers are reporting what employers paid employees, not what people are actually earning. So we might in fact say that while the number being paid the minimum wage or less is 2.2% of the workforce, the number actually earning that figure is more like 0.5%.

As an aside, speaking of bargaining power, it strikes me that prostitution is an excellent example of supply and demand in labor markets trumping government mandates.  Prostitutes have absolutely no power to run to the government for help over minimum wage or work condition violations.  They have only limited power to get government help even when they are the victim of violence from those who pay them.  But on an hourly basis, the most succesful make far more than most Americans.

Posted on January 24, 2008 at 10:56 AM | Permalink

Comments

"But on an hourly basis, the most succesful make far more than most Americans."

The recent Levitt paper shows that unsuccessful ones (ie, street prostitutes in Chicago) are making $25-$40 an hour, a great deal higher than minimum wage. I beleive that average hourly wage (median I think) is around $14 an hour.....

Posted by: Tim Worstall | Jan 25, 2008 1:11:46 AM

holy cow, batman!

What a huge leap:

"That’s your waitron units and barkeeps folks"

Excuse me, but approximately 99% of "food prep and service jobs" are not bartending & waiting positions. This is an incredibly broad sector of the workforce, SERVING (the public, customers or clients) in the private sector alone encompasses call center work, domestic work, groundskeeping labor, custodial, janitorial, cleaning services, hotel work, laundry, not to mention fast-food joints U.S.A. -among other things that do not garner tips. Think of how many workers fitting those categories you pass in your travels everyday, percentage wise, compared to how many waitresses/bartenders.

you never heard of the service sector, the service industry?:
http://en.wikipedia.org/wiki/Service_Sector

And fwiw, I wouldn't assume that 'special' legal lower wage minimum for employers guaranteeing compensatory tips has been included in the study on minimum wage, or that if it has figures haven't been adjusted for tips.

Also fwiw, as a former bartender you would know that part of the 'deal' with being in that special category in which employers get away with paying you a special tiny minimum wage, is you're supposed to pay a 15% tax I believe it is, on your tips, and that 'special' hourly wage does not fly well far as credit and student/home/car/biz loan apps are concerned.


Posted by: Crowings | Jan 26, 2008 8:46:13 AM

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