Friday, July 3, 2015

Setting WSJ Straight on the Minimum Wage

Donald J. Boudreaux letter to the Wall Street Journal:
Your report on how the minimum wage destroys job opportunities for many Puerto Ricans is useful (“Puerto Rico’s Pain Is Tied to U.S. Wages,” July 2).  Yet this report repeats a highly misleading error from a 2012 New York Fed study.  Accurately citing this study, you write that on the American mainland in 2010 16 percent of workers earned the federal minimum wage.  In fact, the real figure is far lower.  According to the Bureau of Labor Statistics, the percentage of mainland workers who earned the minimum wage (or less) in 2010 is 6 percent – much less than half the 16 percent repeated in your report.
Indeed, for two reasons the actual percentage of mainland American workers earning the federal minimum wage or less is much lower than even 6 percent.  First, the BLS data cover only workers who are paid by the hour – a group consisting of only about 60 percent of all U.S. workers.  Adding in workers paid on bases other than hourly rates would, of course, further reduce the percentage of workers earning the minimum wage.  Second, as explained by the BLS, “[t]he estimates of workers paid at or below the federal minimum wage are based solely on the hourly wage they report (which does not include overtime pay, tips, or commissions).”  And such self-reported hourly earnings apparently also exclude the value of fringe benefits.
The reality is that only a tiny fraction of mainland American workers earn as little as the minimum wage – a reality that (1) explains why it is so difficult statistically to detect the disemployment effects of the minimum wage, and (2) is powerful evidence against the oft-repeated assertion that competitive market forces do not on their own adjust each worker’s wages upward as his or her productivity rises.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
The above originally appeared at Cafe Hayek

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