Who Earns the Minimum Wage? And How ‘Bout That EITC?!

It seems that critics of the minimum wage are now arguing that the beneficiaries of higher wages are members of well to do households, such as surburban teenagers. Rea Hederman and James Sherk cite Characteristics of Minimum Wage Workers: 2005:

Of those paid by the hour, 479,000 were reported as earning exactly $5.15, the prevailing Federal minimum wage. Another 1.4 million were reported as earning wages below the minimum. Together, these 1.9 million workers with wages at or below the minimum made up 2.5 percent of all hourly-paid workers … Minimum wage workers tend to be young. About half of workers earning $5.15 or less were under age 25, and about one-fourth of workers earning at or below the minimum wage were age 16-19. Among employed teenagers, about 9 percent earned $5.15 or less. About 2 percent of workers age 25 and over earned the minimum wage or less. Among those age 65 and over, the proportion was about 3 percent.

When Hederman and Sherk say few workers earn the minimum wage or less, I’m not sure 1.9 million people constitutes just a few. But when they also say:

Data from the Department of Labor show that most minimum wage-earners are young, part-time workers and that relatively few live below the poverty line. A minimum wage hike, then, is more a raise for suburban teenagers than for the working poor. If Congress is serious about helping the working poor, it should look elsewhere than raising the minimum wage.

Going from: (a) most of those earning $5.15 an hour are age 25 or less to: (b) most are suburban teenagers strikes me as a real stretch. There are no single parents under the age of 25?

In the meantime, Greg Mankiw is touting another CBO report:

On the basis of data from the March 2005 CPS, about 18 percent of the 12 million workers who were paid an hourly wage rate between the federal minimum wage of $5.15 and $7.24 were in families that had a total cash income below the federal poverty threshold in 2004. Had all of the workers in that wage range, instead, received $7.25 per hour, they would have gotten about $11 billion in additional wages in that year. About 15 percent of those additional wages ($1.6 billion) would have been received by workers in poor families. As requested, CBO examined the potential effects of hypothetical expansions in the EITC that would have provided additional payments to workers in poor families similar to the amount of additional earnings poor workers would have received by increasing the minimum wage rate to $7.25 per hour. One option was to increase the subsidy rate for childless workers by 50 percent. Another option was to increase the subsidy rate for workers with three or more children by 25 percent. On the basis of data from the CPS, combining those options would have increased total EITC payments by roughly $2.4 billion in 2004, with workers in poor families receiving $1.4 billion of that total.

Before one concludes that we don’t really need an increase in the minimum wage, however, Max Sawicky requests that we read Elaine Maag:

Two primary wage-support policies help low-income families: the minimum wage and targeted tax credits. Since 1997, when Congress last raised the minimum wage, the real value of the minimum wage has fallen about 20 percent because of inflation, while the earned income tax credit (EITC) and child credit have been expanded. This brief illustrates how current tax rules interact with the minimum wage and considers whether increased tax credits could substitute for minimum-wage increases for those earning the federal minimum wage. Increasing tax credits enough to substitute for raising minimum wage is probably infeasible because of the cost and the high marginal tax rates required. A more direct route to helping low-wage workers is to raise the minimum wage and index it to inflation.