Life at the Bottom


A female cashier at the McDonalds in Spokane, Washington.

The release of 2012 minimum-wage data last Wednesday—which shows that the number of minimum-wage workers has fallen but is still higher than any period since 1998—has underscored the importance of making good on Obama’s pledge of raising the federal minimum wage from $7.25 to $9 an hour. As many have pointed out, women stand to benefit disproportionately from the increase: Two-thirds of the country’s roughly 1.6 million minimum-wage workers are women. 

Perhaps unsurprisingly, the data show that work at the bottom of the pay scale tends to be highly segregated by gender—the three largest occupational groups, making up 67 percent of minimum-wage jobs, are 65 percent female—and includes jobs historically performed by women such as child care and home health services. According to experts, the problem is twofold: While essential, businesses tend to underpay for these types of work, a problem compounded by the fact that workers in them tend to have little economic mobility. 


By the Numbers

Click above to see a breakdown of the women who work minimum wage.

The United States’ transition to a service-based economy—strongly based in retail, health care, recreation, and administration—has destroyed middle-income jobs in favor of low paying ones, and the lowest paying are overwhelmingly worked by women. The largest occupational group at the minimum wage—food services—in which 32 percent of all minimum-wage earners work, is close to 60 percent female. Retail, home to 26 percent of all minimum-wage jobs, employs women at a 65 percent rate. The third largest group, health services—which includes social assistance, hospital jobs, and home health aides—is a remarkable 86 percent female. Often featuring stressful work conditions and lacking benefits, these jobs also tend to be worse paid than low-wage jobs worked mostly by men.

Women working minimum-wage jobs may also be hard pressed to find something that pays better. Women 25 and over who make $7.25 an hour are nearly three-and-a-half times more likely to have never graduated high school than women working for hourly wages in general. They are also more likely to have never been married (28 percent versus 21 percent) or to be either divorced, separated, or widowed (31 percent versus 25 percent). About 17 percent of the women who would be affected by a minimum-wage increase have children and almost a quarter of them are their family’s sole breadwinner, according to David Cooper of the Economic Policy Institute. Female minimum-wage earners also overwhelmingly live in the South, where every state except Florida has a state wage at or below the federal minimum. Women working for the minimum wage are also slightly more likely to be black (19 percent versus 15 percent) or Hispanic or Latino (21 percent versus 17 percent). These jobs are also rarely unionized, making it difficult for workers to negotiate better pay. 

Raising the pay for minimum-wage jobs worked primarily by women to the levels in male-dominated fields, such as carpentry, would be one way to help women achieve a better standard of living. With labor economists now close to a consensus that a modest increase in the minimum wage will bring a host of benefits with only a small possibility of higher unemployment, there is no good reason not to start paying more for the essential services provided by minimum-wage workers. Seventy-one percent of Americans agree with this position, according to a recent poll from the Pew Research Center and USA Today, including half of Republicans. On that front, President Obama’s call for a rise in the minimum wage to $9.00 an hour in his State of the Union was a hopeful sign.

Results from a growing body of research show that economic mobility in the United States is among the worst of all developed countries. And within the United States, those in the bottom fifth of income have the least mobility. One way to help women and men at the minimum wage access higher paying job would be to expand vocational training and access to higher education. President Obama’s newly proposed education budget featuring heavier spending on vocational and technical training as well as more money for Pell grants, which help lower-income students, could help. Facilitating transitions into higher-paying jobs at the bottom of the qualifications ladder would be a good idea, too. Jobs such as carpentry, machine operation, and electrical repair all pay higher wages than food service, retail, and health services. Programs such as last year’s $1.8 million Department of Labor grant to help place women in “nontraditional programs” such as welding and masonry, as well as organizations like Nontraditonal Employment for Women should and are helping women who want to make the transition into these higher paying but male-dominated fields.

While it is distressing that minimum-wage jobs are overwhelmingly worked by women, we should be just as concerned about how little those workers make, especially at a time when the richest Americans are doing so well. One year’s earnings at the minimum wage is equal to $15,080, an income that would place a family of three below the poverty line, while the cutoff for the top 1 percent of households in 2011 was about $367,000, or 24 years of full-time work at the minimum wage. Raising the pay for the lowest paid jobs may not close that gap by much, nor would funding education and job training programs through higher taxes on the wealthy immediately generate substantially lower income inequality, but both would be steps in the right direction.


$15/hr minimum wage: who's it gonna hurt -- who ya gonna call -- get ready to do your eighth-grade math.

If the federal minimum wage had not shrunk 30 percent (figures rounded) -- from $10.50/hr to $7.25/hr -- between 1968 and 2013, then, Wal-Mart prices would be only 1 1/2% higher today and Wal-Mart workers would be earning 17% more (wages 10% of costs), McDonald's prices would be about 15% higher but McDonald's employees would be earning 45% more (wages 33% of costs), and overall prices today would be 1 1/2% higher for the kind of folks who read this message (by the minimum wage alone -- and not counting rippling push-ups which might not amount to much). Who would be hurt; who would be helped if we had maintained a $10.50/hr minimum wage -- as per capita income happened to grow 100%?!

If the federal minimum wage had grown 43% instead -- from $10.50/hr to $$15/hr -- Wal-Mart prices would now be about 5% higher than if the minimum stayed stuck in 1968 (6.5% prices higher than today) but Wal-Mart employees would be earning 43% more (66% more than today), McDonald's prices would be about 15% higher than in 1968 (35% higher than today) but McDonald's workers would be earning 43% more than in 1968 (107% more than today). Overall prices up 2% (3 1/2% higher than today). Who would be hurt; who would be helped?
The problem with progressive economists analyzing minimum wage effects -- or anything else in the labor market -- is that they have completely lost track of how much the market might happily pay workers (twice as much?!) for their current level of productivity -- they and seemingly everybody else (except this washed up taxi driver? ).

The old story of boiling a frog comes to mind: put a frog into boiling water and it jumps right out -- put it into cool water and gradually raise the temperature to boiling and the frog wont notice. Not sure if this is true for frogs but the eighth-grade math above proves something very much like this seems to have happened to Americans across the board.


Open letter to Oakland mayor Jean Quan:
The only legislation that can realistically end gun violence in Oakland – and Chicago – is a labor law: doubling the minimum wage to $30,000/yr. The Crips and the Bloods could not whip a decent paying Ronald McDonald.

Crackpot? More than doubling the federal minimum wage from $7.25/hr to $15/hr ($600/wk) would cause less than 4% direct inflation:
$3.87/hr (half/average raise) X 2080 hours (full work year) = $8,049/yr X 70 million workers (half the workforce -- $15/hr is today’s median wage) = $563.4 billion. (3.5 million workers at the minimum wage would get a full $16,020 raise may be left out to simplify eighth-grade math.) Divide $563.4 billion by a $15.8 trillion GDP and we get 3.6% direct inflation (not counting leap frog pushups which may not add up to that much – LBJ’s median wage was only 25% higher than his minimum – high minimum wages often approach median level in other economies).

Oakland won’t educate its way out of poverty and crime. Catch 22: political scientist Martin Sanchez-Jankowski, from neighboring UC Berkeley -- who spent nine years in five poor New York and Los Angeles neighborhoods (and ten years before that researching street gangs) -- explains in his 2008 book Cracks in the Pavement that ghetto schools don't work mostly because students (and teachers!) don't expect anything decent awaiting for them in the labor market, so think it hopeless to make the effort.

In 1956 majority leader LBJ steered an $8.50/hr ($1/hr nominally) minimum wage bill through the US Senate. In 1968 (hourly increments and retail workers added in years between) president LBJ piloted a minimum wage of $10.50/hr ($1.60/hr nominally) into law -- per capita income having expanded 25% in the dozen years intervening.

Per capita income has doubled in the two generations since 1968.

There would be a dismal gap even between a minimum wage of $15/hr, or $30,000/yr and a reality-based minimum needs (poverty) level for a family of three – and even between a median wage 25% higher of $18.75/hr, or $37,500/yr.

A realistic poverty line for a family of three is $45,476 in 2012 dollars according to the 2001 Ms. Foundation book Raise the Floor (table 3-2 on p.44 -- includes $8,786 medical insurance cost). Raise totals up from a comprehensive list of expenses, including taxes to get its figure. (Raise provides extensive explanations for its minimum needs parameters in Appendix B, citing Solutions for Progress -- allots $3,000 to yearly medical expenses even if the family has insurance.)

$19,090, supposedly covers the minimum needs for a family of three under the 1955 era federal formula. Both the Ms. and government formulas calculate about $6 per person/per day for food – the ancient federal methodology multiplies the cost of food three times and leaves it at that. Which is why you won’t see the federal measure quoted much anywhere except as a formula multiple (2X, 3X, 4X).A wage even 50% higher than today’s median, of $22.75/hr or $45,000/yr, would barely support a family of three.

"Since 1973 [note: the last year national income gains were shared across-the-board], productivity has grown roughly 80 percent while median hourly compensation improved by roughly 11 percent.” Something more elemental than “raising the floor” needs to be prescribe.

Anyone can work up a list ruses by which the average American’s interests are being hung out to dry these days. I was just going to say the only thing not foisted upon us so far is foreign firms buying up local water rights and charging them back to us triple.

Then I remembered Chicago leasing its parking meter system for 75 years for $1.15 billion:
Up the road from Oakland City Hall – up College Avenue – on the UC of Berkeley campus labors as progressive a progressive economics faculty as anyone should wish. They could you tell you, Madam Mayor, and tell everyone else at the same time [this essay may hopefully edge them in the latter direction] about a species of labor legislation that can potentially re-write the American social contract front to back, economic to political.

Legislation that has been tried and tested over half a century in the first world (Germany, France) moving to the second and third worlds (Argentina, Indonesia) as well as right next door (French Canada). Legislation bringing to Americans a labor market setup devised – not by Karl Marx – but by post WW II German and other continental industrialists – not to empower labor -- but to stifle union wage races-to-the-top that would divert money from industrial bases rebuilding. (England did not take this path which is why it fell behind – which I’m pretty sure I read in Berkeley’s, Barry Eichengreen’s 2008 The European Economy Since 1945.)

Europe's fabled welfare state was offered as a compensation for labor price moderation. Magic bullet: legally mandated, sector-wide collective bargaining – wherein everyone working the same category of job (e.g., retail clerk) in the same geographic locale (where applicable) works under one common contract with all employers – thwarts the race-to-the-bottom just as surely – just the right barraging balance.

The late David Broder, dean of the Washington press corps, said that, when he came to D.C. 50 years ago, all the lobbyists were union – which meant: naturally balanced campaign financing, someone minding the store on the average person’s interests, all backed by the majority of voters -- perfect democracy.

Your friendly economics faculty up the avenue can tell you all about all of this – but you’ll have to ask.

Denis Drew
Chicago (sometimes Berkeley)

"One year’s earnings at the minimum wage is equal to $15080, an income that would place a family of three below the poverty line..."

This facile assertion requires much qualification.

The poverty line for a family of 3 is $19,090/year. 52 weeks/year x 40 hours/week x $7.25/hour = $15080/year. A family of 3 would owe $1154 of FICA and Medicare taxes, but no Federal income tax. The EIC would be $3169 ($5236) for 1 (2) children. Each child would benefit from an Additional Child Credit. Hence the total refundable tax credits with 1 (2) children would be $4169 ($7236), for a total annual income of $18095 ($21162). The family of 3 with 1 earner making the minimum wage and with 1 child is still 5% below the poverty line. A family of 3 with 2 children is 11% over the poverty line.

If the family had two earners making the minimum wage, it would pay $2307 in FICA/Medicare, and $626 in Federal income tax. But it would earn $1910 of EIC and $1000 of additional child credits, and hence owe all of $23/year of Federal taxes. It would also be 58% over the poverty line.

Given these data, there is no case for raising the minimum wage. Moreover, the minimum wage is not set so that the earner can support people other than himself. Rather, the EIC with one child should be raised by about $1000/year. The EIC should hew closely to the Federal poverty line, by making it an amount payable per child, equal to the rise in the poverty line when the size of a family increases by 1. That rise is at present $3960/year.

The tax cum refundable credit system described in this comment is much too complex. If all income were subject to a flat tax of 35%, and all legal residents of the USA paid a demogrant of $4200/year, the net income of a family of 3 with 1 (2) earners, would be 17% (69%) over the poverty line.

You need to be logged in to comment.
(If there's one thing we know about comment trolls, it's that they're lazy)