Alan Reynolds is a nationally syndicated columnist and a senior fellow at the Cato institute.

"What Is a Living Wage?" Jon Gertner's overstuffed cover story in the New York Times Magazine, offers a guess that, "Probably only around 3 percent of those in the workforce are actually paid $5.15 an hour or less." The last two words -- "or less" -- are absolutely critical, yet totally ignored as usual.

The Internet leaves no excuse for guessing about what is "probably" true. Just type "Statistical Abstract" into Google, and then click on Section 12, Table 636: "Workers Paid Hourly Rates."

Table 636 reveals that only 520,000 were paid the $5.15 federal minimum wage in 2004. That was merely four-tenths of one percent (0.4 percent) of total non-farm civilian employment -- far short of Gertner's 3 percent adventure in probability. Nearly three times as many U.S. workers (1,483,000) were paid less than the minimum wage. Among full-time workers, only 177,000 earned the $5.15 minimum wage in 2004, while 3.3 times as many (583,000) earned less than $5.15. As I mentioned, the words "or less" after $5.15 are there for a reason.

Whenever the minimum wage has been increased, the most obvious result was an increase in the number earning less than the minimum.

If we ignore the 45 percent of full-time U.S. employees who earn salaries rather than wages, it might almost be true that "around 3 percent" of those paid by the hour are actually paid $5.15 an hour or less. But that is only because 2 percent of those paid by the hour earn less than $5.15 an hour. And that raises an obvious question: How on earth is an increase in the minimum wage supposed to help the nearly 1.5 million people who are not earning that much in the first place?

Gertner was handicapped in answering that question by his choice of sources. He lauds David Card and Alan Krueger, who managed to write an entire book about the minimum wage without even noticing 1.5 million people earning less than the minimum wage. Gertner even quotes Robert Pollin, whose appalling book, The Living Wage, claimed, "Only 8.9 percent of the workforce actually earns the minimum wage." Either these experts are unaware of the Statistical Abstract, or they think facts are just a moral issue.

When the minimum wage was last increased in 1997, the number of workers earning less than the minimum jumped to 3 million. The percentage of teens working for less than the minimum rose from 7.2 percent to 19.8 percent (it was 4.6 percent in 2004).

I plowed this abandoned field once before in a July 2004 column, "When More Is Less," which is still at cato.org under my bio. "Any employer with an annual income below $500,000 is free to ignore the minimum wage," I explained. "The federal minimum wage does not apply to workers on small farms or at seasonal amusement or recreational facilities. It does not apply to newspaper deliverers, companions for the elderly, outside salesmen, U.S. seamen on foreign-flagged ships, switchboard operators or part-time babysitters." Such handy loopholes aside, there is sure to be some outright evasion of any minimum-wage law, since it is impossible to monitor all the casual day labor and home care going on.

Gertner's minimum wage story is local, rather then national, but the issues are the same. He offers the unusual example of Santa Fe, N.M., a town of "wealthy retirees and ... movie stars," where "the tight labor market has pushed up wages so that many entry-level workers were already earning more than $8 an hour." We're not talking about some sleepy little village in Mississippi or Montana.

In February 2003, the city council hiked the Santa Fe minimum wage to $8.50 an hour, and to $9.50 this year. That was not as bold as it sounds, since many entry-level workers were already earning more than $8 an hour. Yet Gertner managed to dig up 17 human interest stories, and all but two of those were supposedly earning much less than Santa Fe's legal minimum last year, which was $8.50 an hour. They earned as little as $5.50 an hour, the story tells us, even as we are also told the minimum wage has just been increased from $8.50 to $9.50.

How could that be possible? Perhaps these people worked for little shops that are exempt from the law. But if that were true, then the questions they were asked about how they will benefit from $9.50 an hour would have been a cruel hoax. Well, it's just supposed to be a morality tale.

Every minimum wage law, national or local, has loopholes big enough to drive a truck through. Santa Fe's minimum wage does not apply to businesses with fewer than 25 employees. That means it excludes all the smallest businesses, the ones most likely to offer the worst wages and benefits. Count the workers at any Santa Fe drycleaner, gas station, convenience store or quaint little gift shop or bistro, and you won't find one dozen employees, much less two dozen. To the extent that the Santa Fe minimum wage is binding (higher than the tight market would be paying anyway), its effect will be to divert more displaced job applicants into such small enterprises that are exempt from the law, and thereby depress wages and benefits in such small businesses.

If any little business happened to be approaching 25 employees, the author rightly notes, they'd have a perverse incentive to stay small. Supermarkets in Santa Fe will also have a greater incentive to invest in self-checkout lanes, or to relocate outside city limits.

"Is How Much You Pay a Worker a Moral Issue?" asks the magazine cover. Well, moralizing can easily substitute for economics among elitists who don't really care how many more people they shove into the ranks of those paid less than some local or national minimum.

Those displaced from job opportunities by a higher minimum wage have to abandon the job search or they have to compete in larger numbers for scarce jobs that pay less than the minimum wage. Such intensified rivalry must push the lowest wages even lower. As moral issues go, this "living wage" crusade is purely malevolent.

http://www.cato.org/pub_display.php?pub_id=5409

1/19/2006 11:56:41 AM

I actually never knew, I wonder if the laws are similar here in North Carolina... Here are the important points for those that find the article lengthy
// Begin Article

...only 520,000 were paid the $5.15 federal minimum wage in 2004. That was merely four-tenths of one percent (0.4 percent) of total non-farm civilian employment Nearly three times as many U.S. workers (1,483,000) were paid less than the minimum wage. Among full-time workers, only 177,000 earned the $5.15 minimum wage in 2004, while 3.3 times as many (583,000) earned less than $5.15.

Whenever the minimum wage has been increased, the most obvious result was an increase in the number earning less than the minimum.

When the minimum wage was last increased in 1997, the number of workers earning less than the minimum jumped to 3 million. The percentage of teens working for less than the minimum rose from 7.2 percent to 19.8 percent (it was 4.6 percent in 2004).

"Any employer with an annual income below $500,000 is free to ignore the minimum wage," I explained. "The federal minimum wage does not apply to workers on small farms or at seasonal amusement or recreational facilities. It does not apply to newspaper deliverers, companions for the elderly, outside salesmen, U.S. seamen on foreign-flagged ships, switchboard operators or part-time babysitters." Such handy loopholes aside, there is sure to be some outright evasion of any minimum-wage law, since it is impossible to monitor all the casual day labor and home care going on.

Those displaced from job opportunities by a higher minimum wage have to abandon the job search or they have to compete in larger numbers for scarce jobs that pay less than the minimum wage. Such intensified rivalry must push the lowest wages even lower. As moral issues go, this "living wage" crusade is purely malevolent.

[Edited on January 19, 2006 at 12:44 PM. Reason : .,.]

1/19/2006 12:42:57 PM

i think the "or less" refers to servers et al who are getting 2.13 an hour + tips.

they arent that bad off.

1/19/2006 12:56:19 PM

The point of the article is that it also applies to people that simply earn $3 + nothing an hour. Minimum wage laws tend to exempt whole sectors of the economy.

As such, raising the minimum wage would push workers out of the regulated sectors and into the unregulated sectors which tend to have lower wages. As such, for some a higher minimum wage means a higher wage, for others it means receiving a lower wage, and for still some others it means unemployment.

1/19/2006 1:50:01 PM

I don't understand the mindset of those working in a salaried position making less than minimum wage. You're obviously being paid below your going rate. Find another job. It shouldn't be that hard if there are kids at mcdonald's making more.

1/19/2006 1:59:27 PM

If you worked at minimum wage for a salary (assuming 40 hours per week) you'd be making just under 11K/year. Who would accept a salary for 11K/year? Especially considering they can get more than 40 hours out of you per week and still pay the same wage.

1/19/2006 3:38:35 PM

The minimum wage should be done away with. No need for government regulation of the economy in this regard (or any regard).

1/19/2006 3:39:07 PM

^Good idea!

1/19/2006 4:02:25 PM

^^ completely agree. Further, I don't buy the argument above about salaries that are under the minimum wage. I think they were talking about servers who get that whopping 2.12 or something.

End government interference in the market and we wouldn't need minimum wage laws.

[Edited on January 19, 2006 at 4:03 PM. Reason : .]

1/19/2006 4:03:02 PM

Yea, businesses would be paying workers so much more if they weren't hindered by government regulations...

1/19/2006 4:15:36 PM

*sigh* someone needs to take an econ class.

What would happen if the government were to raise the wage to $7 an hour? What if your work isn't worth $7 an hour? What if you're a 16 year old kid looking for a job and since the local mcdonalds is forced to pay you $7 an hour, why not pay an adult $7.50 or $8.00 to do the job?

Back in the day, we used to have ushers at movie theaters. They got paid next to nothing (14 year old kids were the ushers). It was like a dollar an hour. As soon as the minimum wage got to a certain level, theater owners could no longer justify paying for ushers. What did they do? Got rid of the job altogether.

Who is hurt by minimum wage laws? Those it's supposed to help.

By raising the level of wage, you're also raising the level of skill (indirectly). If your skill level isn't worth that wage level (the poor among us without educations or high school kids) you're left without a job.

Thanks minumum wage!

If people would actually study the market, they would find out that that invisible hand that so many people mock... actually works. Without government oversight, the economy will run itself and much more efficiently than it does now.

[Edited on January 19, 2006 at 4:19 PM. Reason : .]

1/19/2006 4:18:33 PM

Another example:

Say you like beef. You like hamburgers, but you like steak more because steak is a higher quality of beef. You can buy a burger for $3 or a steak for $10. You're on a budget so you go with the burger. Then the government steps in and says that hamburgers are too cheap and raises the price of burgers to $9. You have your choice now. A $9 hamburger or a $10 steak. Which are you going to choose? I'd go with the steak for a buck more. That's how the minimum wage actually hurts those (lower quality beef, in this example) it's supposed to help

1/19/2006 4:21:45 PM

I completely agree abonorio, and will add this. The minumum wage (along with all other socialist regulations) places corporations out of the accountability of the American people. Raising it would hurt if not destroy alot of smaller businesses because they donot take in the revenue necessary to raise their wages to retain/hire the same calibar of employees. It destroys competition and takes away the consumers choice. That's exactly what these mega-corporations want, because that means they donot have to provide adequte service, as they know people have nowhere else to turn. It's why Walmart is pushing for raising the minimum wage under the guise of philathropy.

http://www.mises.org/story/1950

Furthermore, the minimum wage forces businesses to pay higher wages than the job the worker is performing warrents. Why the hell should a boxlifter get paid $5.25 an hour? That job to me isn't even worth $2.00 an hour. The market will regulate itself. Once a company experiences a hard time retaining/hiring good workers it will raise its wages. No need for the government to interfere, as they always fuck everything up.

1/19/2006 5:30:56 PM

Quote :

"Jere: Yea, businesses would be paying workers so much more if they weren't hindered by government regulations..."

and yet I was making more than minimum wage working in fast food back in high school...

1/19/2006 6:12:04 PM

Quote :

"The market will regulate itself. Once a company experiences a hard time retaining/hiring good workers it will raise its wages. No need for the government to interfere, as they always fuck everything up."

Absolutely. And if that company can't get someone to work for $2.00 an hour lifting boxes, guess what they do, keep going up until you have willing workers. IT'S MAGIC, you say? No, it's quite simply The Market

Quote :

"and yet I was making more than minimum wage working in fast food back in high school..."

Yep. Simply put, businesses are willing to pay for good workers, no matter who you are. Guess who gets the minimum wage? Either 16 year olds or people who don't give a fuck. Why should they get more? If you work hard, then you'll get paid what you're worth and what the market determines is a fair price.

It's all supply/demand. If you have a job flipping burgers and you're giving $25.00 an hour, you'll have applicants out the door wanting that job. Then you'll think to yourself, "well damn, if this many people want the job, I can lower the price of labor." And you do. $17.00 an hour, some people leave. $10.00 an hour, most people leave. You'll find that point where you have enough willing workers to work at a fair that you both think is fair. It's called equilibrium. And without government interference, the market always finds it.

1/19/2006 7:30:15 PM