No Apparent Motive

Janelle Jones and I have a short post at the CEPR blog with information on the educational attainment of low-wage workers in the 50 states and the District of Columbia.

The chart below, from the CEPR blog, shows the share of low-wage workers in each state that have at least some college education (including those with two-year, four-year, and advanced degrees), in the early 1980s (the diamonds) and in the most recent three-year period (the arrow heads). Low-wage workers are defined as earning $10.00 or less per hour (in inflation-adjusted 2011 dollars).

In every state low-wage workers are much better educated today than they were three decades ago.

Source: CEPR.

Source: closer to the ocean.

Best entry ever at the paymentreformmadememe.tumblr.com.

By John Schmitt and Janelle Jones

Relative to any of the most common benchmarks – the cost of living, the wages of the average worker, or average productivity levels – the current federal minimum wage of $7.25 per hour is well below its historical value. These usual reference points, however, understate the true erosion in the minimum wage in recent decades because the average low-wage worker today is both older and much better educated than the average low-wage worker was in the past.

All else equal, older and better-educated workers earn more than younger and less-educated workers. More education – a completed high school degree, an associate’s degree from a two-year college, a bachelor’s degree from a four-year college, or an advanced degree – all add to a worker’s skills. An extra year of work also increases skills through a combination of on-the-job training and accumulated work experience. The labor market consistently rewards these education- and experience-related skills with higher pay, but the federal minimum wage has not recognized these improvements in the skill level of low-wage workers.

Even if there had been no change in the cost of living over the last 30 years, we would have expected the earnings of low-wage workers to rise simply because low-wage workers today are, on average, older and much better educated than they were in 1979, when wage inequality began to rise sharply in the United States.

Let’s start with age. Between 1979 and 2011, the average age of low-wage workers (defined as earning $10.00 per hour or less in 2011 dollars) increased 2.3 years, from 32.3 to 34.9.  As the figure below shows, the rise in the average age reflects a big drop in the share of low-wage workers who are teenagers – from over one-in-four (26.0 percent) in 1979 to less than one-in-eight (12.0 percent) in 2011.

Source: Schmitt and Jones (2012) analysis of CPS.

The educational attainment of low-wage workers has also soared. As the next figure demonstrates, the share of low-wage workers with some college education (but not a four-year degree) rose dramatically, from about one-in-five (19.5 percent) in 1979 to one-in-three (33.3 percent) in 2011. By 2011, almost one-tenth (9.9 percent) of low-wage workers had a four-year college degree or more, up from 5.7 percent in 1979. And the share with less than a high-school degree dropped by almost half, from 39.5 percent in 1979 to only 19.8 percent in 2011.

Source: Schmitt and Jones (2012) analysis of CPS.

As we consider where to set the minimum wage going forward, it is not enough to calculate what level would preserve the purchasing power of this federal wage floor. We should also factor in reasonable rewards for the improvements in the educational attainment and work experience of low-wage workers. According to calculations we perform in a new CEPR issue brief, doing so would imply a minimum wage that is at least 9 to 14 percent higher than the inflation-adjusted value in 1979 or even higher relative to 1968. Using 1979 as a reference point, our calculations suggest a minimum wage in the range of at least $9.33 to $9.70 dollars per hour. While we cannot fully adjust for increases in age and education over the full period since 1968, applying a roughly similar methodology to the real value of the minimum wage in that year implies a 2012 minimum wage of at least $10.55 to $10.97 per hour.

(For the full issue brief, complete with a data appendix, click here (pdf). This post first appeared at the CEPR Blog.)

Paul Krugman has reproduced an OECD chart that was featured in  a recent post by Jared Bernstein. The graph of interest (below) contrasts the share of older and younger people in OECD countries that have the equivalent of a four-year college degree or more.

Source: OECD via Jared Bernstein.

The dark blue squares show the share of the population age 55-64 with a college education; the light blue triangles show the share of much younger 25-34 year olds that have college degree. The arrows connecting the two observations for each country give an idea of the degree of national progress between generations. So, the long lines for Korea or Ireland, for example, suggest enormous progress in the thirty years or so between the time when the two age groups hit college age.

Jared’s main concern is that the United States “has essentially ceased making progress in terms of college attainment.” There is no arrow between the older and the younger generations’ college attainment rates because they are basically identical. Jared also notes that our younger generations are “now behind those of 12 other countries.” Krugman highlights the same points: “what we see is that almost every other nation is becoming more educated, but we’re not — and, of course, [the United States is] slipping rapidly down the rankings.”

I’d also emphasize two additional points. First, it is nice to hear a prominent economist like Krugman argue that the cost of college “is surely the biggest single reason for our slide.” Almost anyone who isn’t an economist will be surprised to hear that the costs of college barely appear on the radar screen of most economists who study the steep rise in inequality over the last three decades.

Here, for example, are economists Michael Greenstone (MIT) and Adam Looney (Brookings), in their otherwise excellent paper (pdf) on stagnating and declining male earnings since the 1970s:

…men have largely stopped upgrading their skills – the portion of young men who complete college has hardly budged since the late 1970s. The reasons are not entirely clear, but include the end of the Vietnam War (which had artificially inflated college attendance rates among men) and a temporary narrowing of the wage gap in the 1970s as the supply of skilled workers in the labor force surged.

Not a mention of the rising cost of college, and this is entirely typical in the economics profession. (Heather Boushey and I have a different take (pdf).)

Second, Germany is an interesting and overlooked case. In the chart, Germany looks just like the United States, with no progress between the two generations. Worse, the Germans look stuck at a much lower level than the United States –even below the OECD average. Yet, Germany is one of the world’s economic powerhouses and leading exporters.

The German experience suggests that economic success isn’t all about college. Germany puts fewer people through college, but also provides important post-secondary educational opportunities for the majority of young people that don’t get a college degree, including the acclaimed German apprenticeship system.

It isn’t just that we don’t have enough college graduates in the United States, it is also that we don’t create enough high-quality, post-secondary but non-college educational experiences either.

Earlier this month, the Bruegel blog ran a long, provocative post titled “Europeans can’t blog.” The main point was this observation:

It is striking to note that the online debate about European economic issues mostly takes place on American blogs. A couple of European blogs have contributed to change this landscape, but the European blogosphere remains behind the US in terms of quality and density of discussion.

Of course, Europeans can blog. The problem, instead, seems to be that the European economic blogosphere is less interconnected and less engaged with itself than seems to be the case here in the United States. (Mexican econoblogger Alejandro Villagomez references the Bruegel post and raises similar concerns for the Mexican econoblogoshere.)

In response, Henning Meyer, who blogs at the Social Europe Journal, has posted an informal list of top European economics blogs. He lists over a dozen blogs, including several of my daily reads: Voxeu.org and Andrew Watt and George Irvin (both of the last two housed at Social Europe).

The comments section for Meyer’s post adds at least a dozen more European economics blogs (and, in the process, undermines the original Bruegel view that European economics blogs are not interactive enough). In that spirit, let me add David Lizoain‘s informal, eclectic, Tumblr-powered blog, which deserves more attention than it gets. (Lizoain also contributes regularly to Social Europe.)

By John Schmitt and Marie-Eve Augier

The current value of the federal minimum wage — $7.25 per hour — is often compared to the cost of living, the average wage in the economy, or the productivity of the average worker. By all of these benchmarks, the current federal minimum is well below its historical levels.

But the current minimum wage looks even worse when compared with two kinds of purchases strongly associated with a middle-class standard of living or the ability to move up to the middle class: health insurance and a college degree.

The charts below shows the results of a simple exercise. We ask how many hours did a minimum-wage worker have to work to pay for a year of college education (at various kinds of institutions) or a year of health insurance (for an individual or a family). The table compares the experience facing a minimum-wage worker in 1979 — when the minimum wage was $2.90 per hour — with that of a minimum-wage worker in 2010 or 2011 — when the minimum wage was $7.25. (All wages and prices, here and below, are in current dollars — that is the actual dollar value at the time, without any adjustment for inflation. The point is to compare the minimum wage in place in each period with the actual cost of health and education services at the same point in time.)

A minimum-wage worker in 1979, making $2.90 per hour, had to work 254 hours in a year to pay the $738 annual cost of tuition at a public four-year college in that same year. By 2010, minimum-wage workers at $7.25 per hour had to spend 923 hours to cover the $6,695 annual tuition at a public four-year college. (All our calculations ignore taxes and subsidies. More on that later.)

Source: Schmitt and Augier (2012).

In 1979, a four-year private college required 1,112 hours of work at the minimum wage. By 2010, the cost in minimum-wage hours had increased so much that it was no longer possible to pay for a full year of a private four-year college — 3,201 hours — by working full-year, full-time (2,080 hours) at the minimum wage.

Even the minimum-wage hours needed to pay tuition for one year at a two-year college almost tripled between 1979 and 2010, from 156 hours to 403 hours.

Health-insurance premiums have also increased enormously when expressed in terms of the minimum wage. In 1979, one year of individual health insurance coverage cost a minimum-wage worker 130 hours. By 2011, the same coverage cost 749 hours.

Source: Schmitt and Augier (2012).

The cost of family coverage increased from 329 hours in 1979 to 2,079 hours in 2011. These figures imply that after paying for family health insurance coverage, a minimum-wage worker would have just one hour of work left over to spend on other goods and services after working 40 hours per week for 52 weeks in a year.

Of course, this analysis does not factor in taxes paid (or the effects of the Earned Income Tax Credit, which was introduced in 1975). The actual number of after-tax hours required would be higher than the pre-tax hours used here; though the Earned Income Tax Credit can offset the cost of taxes for some low-wage workers, particularly those in low-income families with children. (For a discussion of the relevant workings of the EITC, see this recent CEPR report.) Nor do the numbers in the table capture important differences over the period in the effective costs of college tuition and health insurance facing minimum-wage workers.

In the case of college tuition, federal grants and loans are more generous today than they were at the end of the 1970s. As a result, the increase in the costs of college tuition, net-of-federal-grants, is lower for the average minimum-wage worker than is suggested by the chart. Nevertheless, the increases in grants have not kept pacewith increases in tuition (as well as room and board, books, and other expenses, which we do not include in our analysis). Meanwhile, the substantial increase in the use of student loans has meant that many minimum-wage workers today would leave college (with or without their degree) with a much higher level of debt than was typical at the end of the 1970s.

The health insurance costs in the table are based on the premiums for employer-provided health-insurance policies, which are group plans that minimum-wage workers can use only if their employers offer a plan. But, the share of low-wage workers with employer-provided health insurance has fallen from 42.9 percent in 1979 to 25.9 percent in 2010. Only a small share –about 8.1 percent– of low-wage workers purchase their own individual health-insurance policies. Nor do the health insurance figures here factor in the availability of publicly provided health insurance, such as Medicaid and CHIP (Child Health Insurance Program). Public health-insurance coverage for low-wage workers did increase somewhat, from 8.8 percent of low-wage workers in 1979, to 12.8 percent by 2010.

Some economists emphasize the rapid decline over the last century in the relative price of agricultural products and manufactured goods (such as televisions and air conditioners). These analyses, however, inevitably ignore or downplay the large relative increases in the price of crucial services such as education and healthcare. Minimum-wage workers today may be able to buy DVD players that did not exist in 1979, but at the current level of the minimum wage, they are also far less able to cover college tuition or health-insurance premiums.

(For a printable version of this post, complete with a data appendix, click here. This post originally appeared on the CEPR blog.)

It is coming up on three years since the last increase in the federal minimum wage –to $7.25 per hour– in July 2009.

By all of the most commonly used benchmarks – inflation, average wages, and productivity – the minimum wage is now far below its historical level. By all of these reference points, the value of the minimum wage peaked in 1968. If the minimum wage in that year had been indexed to the official Consumer Price Index (CPI-U), the minimum wage in 2012 (using the Congressional Budget Office’s estimates for inflation in 2012) would be at $10.52. Even if we applied the current methodology (CPI-U-RS) for calculating inflation –which generally shows a lower rate of inflation than the older measure– to the whole period since 1968, the 2012 value of the minimum wage would be $9.22.

Using wages as a benchmark, in 1968 the federal minimum stood at 53 percent of the average production worker earnings. During much of the 1960s, the minimum wage was close to 50 percent of the same wage benchmark. If the minimum wage were at 50 percent of the production worker wage in 2012 (again, using CBO projections to produce a full-year 2012 estimate), the federal minimum would be $10.01 per hour.

A final benchmark for the minimum wage is productivity growth. The figure above compares growth in average labor productivity with the real value of the minimum wage between the late 1940s and the end of the last decade. Between the end of World War II and 1968, the minimum wage tracked average productivity growth fairly closely. Since 1968, however, productivity growth has far outpaced the minimum wage. If the minimum wage had continued to move with average productivity  after 1968, it would have reached $21.72 per hour in 2012 – a rate well above the average production worker wage. If minimum-wage workers received only half of the productivity gains over the period, the federal minimum would be $15.34. Even if the minimum wage only grew at one-fourth the rate of productivity, in 2012 it would be set at $12.25.

(For a pdf version of this post, click here. This post originally appeared on the CEPR blog.)

Justin Wolfers correctly tweets this morning that: “As unemployment falls, so will long-term joblessness.”

But, it could still take a very long time.

The labor-market categories that Janelle Jones and I have been focusing on in two recent reports –the long-term unemployed, discouraged workers, the marginally attached, and those part-time for economic reasons– have so far not responded much to job growth and the decline in the overall unemployment rate:

I was struck by these lines from the Bureau of Labor Statistics summary of today’s jobs report:

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed at 5.4 million in February. These individuals accounted for 42.6 percent of the unemployed.

In February, 2.6 million persons were marginally attached to the labor force, essentially unchanged from a year earlier.

Among the marginally attached, there were 1.0 million discouraged workers in February, about the same as a year earlier.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 8.1 million in February.

I participated today in a great event organized by the Aspen Institute on “Reinventing Low-Wage Work.”  The focus was on the restaurant industry (though my comments were about low-wage work more generally).

The featured speaker was Representative Donna Edwards, who discussed her bill –the WAGES Act– which would substantially raise the minimum wage that applies to tipped workers. The current minimum wage for tipped workers is just $2.13 an hour –where it has been stuck for the last 21 years. (The federal minimum wage for non-tipped workers is $7.25 per hour –way too low, but more than three times higher than what applies to tipped workers.)

I was on a panel, moderated by Peter Edelman, that followed Rep. Edwards’ remarks. The two other panelists were Andy Shallal, owner of Busboys & Poets, and Saru Jayaraman, co-founder of Restaurant Opportunity Centers United. Helen Neuborne of the Ford Foundation, one of the sponsors of the event, and Maureen Conway, of the Aspen Institute and the main organizer, also spoke.

You can watch the whole event here.

In a CEPR report (pdf) out today, Janelle Jones and I examine the demographics –gender, race, and age– of long-term hardship in the labor market. The report follows up on a paper (pdf) we did in January that made the case for looking beyond the standard “long-term unemployment” measure, to include the “discouraged,” the “marginally attached,” and the involuntarily part-time.

The new paper describes the people who are currently experiencing long-term hardship. This chart, for example, shows the race and gender breakdown of the short-term unemployed (STU), the long-term unemployed (LTU), the unemployed and underemployed using the Bureau of Labor Statistics “U-6″ measure, and those not in the labor force (NILF).

Our main conclusion, from the paper:

…by whichever measure  –the standard long-term unemployment rate or an expanded “long-term hardship” measure…– the data … show that the burden of long-term joblessness is borne unevenly. Blacks and Latinos, less-educated workers, and younger workers are all much more likely to be unemployed, long-term unemployed,  “discouraged,” “marginally attached,” or involuntarily part-time, with terrible consequences for these groups’ current and future economic, social, and health outcomes.