The Mobility Myth

A short clip from a great short piece by James Surowiecki in The New Yorker:

“Increasing economic opportunity is a noble goal, and worth investing in. But we shouldn’t delude ourselves into thinking that more social mobility will cure what ails the U.S. economy. For a start, even societies that are held to have “high” mobility aren’t all that mobile. In San Jose, just thirteen per cent of people in the bottom quintile make it to the top…

“More important, in any capitalist society most people are bound to be part of the middle and working classes; public policy should focus on raising their standard of living, instead of raising their chances of getting rich. What made the U.S. economy so remarkable for most of the twentieth century was the fact that, even if working people never moved into a different class, over time they saw their standard of living rise sharply.”

CBO and the minimum wage, Pt. 2

In a post yesterday, I reviewed a long list of ways in which Tuesday’s Congressional Budget Office (CBO) report embraced arguments made by supporters of the minimum wage. In this post, I want to make some observations on CBO’s analysis of the employment effects of the minimum wage, the aspect of the report that has received, by far, the most attention in the media.

In a major departure from earlier CBO analysis, the range of likely employment outcomes in the new CBO report includes zero.

Headlines have focused on CBO’s “central estimate” of the “change in employment” from an increase in the federal minimum wage to $10.10 –a loss of 500,000 jobs. But, the “likely range” in the CBO forecast runs from a “[v]ery slight decrease to -1.0 million workers.”

A mid-range estimate of 500,000 jobs lost, with a high-end estimate of one million jobs lost, is obviously bad optics for the proposed increase. Nevertheless, recognition in a CBO document that the “likely range” of employment effects effectively includes zero (a “very slight decrease”) is, as far as I can tell from reviewing several past CBO evaluations of the minimum wage, completely unprecedented.

Two CBO reports from the late 1990s, for example, assume that a 10 percent increase in the minimum wage would reduce employment of teenagers by between 0.5 percent and 2.0 percent, with a “smaller percentage reduction for young adults (ages 20 to 24).” (CBO, 1999, p. 4) A 2001 CBO report was not as explicit about its assumptions, but the estimated employment impact did not include zero (200,000 to 600,000 jobs lost).

Including zero in the range of plausible employment outcomes –for the first time ever– ought to feature more prominently in the discussion of the report and in the evaluation of the proposal on the table, especially considering that the proposal involves an increase in the minimum wage of almost 40 percent.

More than two decades of research that has questioned the negative employment impact of moderate increases in the minimum wage is slowly entering into standard analysis.

The CBO chose not to referee a deep divide in the economics profession and, instead, awkwardly split the difference on estimates of the employment effects.

The appendix to the CBO report provides details on specific assumptions about the employment effects of the minimum wage, but offers little on how CBO arrived at those specifics.

Two assumptions drive most of the employment results. The first is the assumption that a 10 percent increase in the minimum wage would reduce teen employment by 1 percent with a “likely range” from close to zero (“a very slight negative amount” p. 23) to as high as 2 percent. The second assumption is that the effect on low-wage adults would be “about one-third” (p. 25) of the estimated effect for teenagers.

The CBO cites numerous studies in connection with the choice of these “policy elasticities.” But, non-specialist readers won’t realize that none of CBO’s parameters actually appear in any of the studies cited. Probably the most prominent minimum-wage critics, David Neumark and William Wascher, for example, argue that a 10 percent increase in the minimum wage reduces teen (and less-skilled worker) employment by 1 to 2 percent –not the 0 to 2 percent used by the CBO. Other critics would put the range between 1 and 3 percent, for a mid-range of 2 percent. Meanwhile, the research by Arindrajit Dube, Michael Reich, Sylvia Allegretto, and William Lester –the group of economists that in recent decades has most informed minimum-wage supporters– puts the employment effect on teens as centered close to zero, with a 10 percent increase in the minimum wage associated with between a 0.6 percent decrease and a 1.3 percent increase in employment (this range taken from Allegretto, Dube, Reich, and Zipperer, Table 3, columns 5-8).

As Michael Reich has noted, CBO’s range lies somewhere between the two camps, with no explanation from CBO as to how it chose to weight the two very different sets of estimates. Siding with the critics of the minimum wage would have produced higher estimates of job loss than what CBO published. Siding with the large and growing body of research finding little or no employment effect would have produced much lower estimates of loss and not ruled out the possibility of job gains.

The CBO breaks with the existing research by assuming significant job loss for low-wage adults.

As I mentioned earlier, the CBO assumes that the employment effects on adults would be one-third of what they would be for teenagers. As the CBO notes, there is “much less research … on the responsiveness of adult employment to minimum-wage increases than on the responsiveness of teenage employment.” In fact, the idea that the minimum wage has essentially no effect on adult workers has long been close to the consensus view within the economics profession. In a large review of the literature at the beginning of the 1980s, for example, Charles Brown, Curtis Gilroy, and Andrew Kohen concluded that even the “direction of the effect on adult employment is uncertain in the empirical work, as it is in the theory” (p. 524) –and that was before the wave of research since the early 1990s that has questioned the negative employment impact of the minimum wage. Indeed, this view has been so standard, that the CBO studies from the late 1990s and early 2000s that I cited earlier appear to assume no employment effects on adults. Since the CBO concludes that 88 percent of workers affected by a minimum-wage increase are not teenagers, this unconventional assumption has a large impact on their final calculations.

Critics and opponents of the minimum wage agree that employment effects are not the only aspect of the minimum wage that should factor into decisions about the policy.

In their book Minimum Wages, critics David Neumark and William Wascher write:

“But the existence of disemployment effects does not necessarily imply that minimum wages constitute bad social policy. As with many government rules and regulations, a higher minimum wage entails both benefits and costs. Thus, the question is not whether there are any costs to a higher minimum wage, but instead whether the trade-offs between the costs and the benefits are acceptable…” (pp. 141-42)

And minimum-wage supporter Jared Bernstein makes a similar point: “even if [critics] are right…the beneficiaries far outweigh those displaced.” (Or see liberal columnist Harold Meyerson’s tweet: @HaroldMeyerson: CBO: Minimum wage hike will help 33 workers for every 1 it hurts. Pretty damn good ratio.)

Several commentators have made a more forceful version of this argument, suggesting that if the minimum wage isn’t causing some amount of job loss, it probably isn’t being set high enough. The unconventionally liberal Matt Yglesias, for example, writes:

“If the White House genuinely believes that a hike to $10.10 would have zero negative impact on job creation, then the White House is probably proposing too low a number. The outcome that the CBO is forecasting—an outcome where you get a small amount of disemployment that’s vastly outweighed by the increase in income among low-wage families writ large—is the outcome that you want. If $10.10 an hour would raise incomes and cost zero jobs, then why not go up to $11 and raise incomes even more at the cost of a little bit of disemployment?”

This view is shared, in almost identical terms, by the not-so-liberal Josh Barro in a post titled
If Your Minimum Wage Increase Doesn’t Raise Unemployment, You Didn’t Raise The Minimum Wage Enough:

“…a minimum wage increase can cause a modest rise in unemployment and still be a good policy idea, so long as it has more than offsetting positive effects. And the minimum wage trade-off presented by CBO looks awfully favorable. For every person put out of work by the minimum wage increase, more than 30 will see rises in income, often on the order of several dollars an hour. Low- and moderate-income families will get an extra $17 billion a year in income, even after accounting for people who get put out of work; for reference, that’s roughly equivalent to a 25% increase in the Earned Income Tax Credit.”

We can only ask CBO to lay out the likely consequences of particular policies. Once trade-offs are involved, we need to make the value judgments that CBO can’t make for us. Much of the media coverage has hyped the mid-range job-loss number and what that number means for the political prospects of proposed increase, but the same coverage has done little or nothing to explore any trade-off between higher incomes and fewer jobs.

We need to have a realistic understanding of the low-wage labor market.

A range of people –young, old, men, women, white, black, Latino, Asian, full-time and part-time, less-educated and college-educated– work in low-wage jobs, many for large parts of their working life. But, an important feature of low-wage jobs is that they tend to have high turnover. Even if half the workers in a low-wage workplace are in stable long-term jobs, the other half of positions might turnover completely once or even twice in a year.

High turnover is an important context to keep in mind when evaluating the costs and benefits of the minimum wage. Even if the CBO’s central estimate of job loss is correct, very few low-wage workers will receive pink slips. Given high turnover, employers who want to reduce employment are much more likely to make any adjustments implied by the CBO estimates through attrition –failing to replace a few percent of the workers who leave on a regular basis.

Workers looking for jobs at the new, higher minimum wage may be looking in a slightly smaller job pool, for a slightly longer period of time. But, when they find a job, it will pay substantially more than the job they would have found somewhat more quickly at the old, but lower minimum wage. Given this reality and the CBO numbers, which suggest that the minimum wage yields a large net transfer of income from employers to low-wage workers as a group, it is hard to imagine that any low-wage workers would be worse off on an annual basis after the minimum-wage increase. (As my colleague Dean Baker puts it, unlike many other policies, including trade agreements, patent protection, or fiscal austerity, there are no “designated losers” with the minimum wage.)

Whenever we’re talking about employment effects, we need to be sure that the conversation includes macroeconomic policy.

In the current context of high unemployment, the easiest way to make up for negative employment effects of any policy is to be sure that we are pursuing appropriately expansionary macroeconomic policy. To a first approximation, labor-market institutions such as the minimum wage, unemployment insurance benefits, and unions determine the distribution of wages, benefits, and incomes, while macroeconomic policy determines the level of employment. There may be circumstances where labor-market institutions begin to act as important constraints on employment, but it is hard to argue that we are anywhere near there now, or even that we have been anywhere close in the last three decades. (For example, we saw no signs of rising inflation at the end of the 1990s and into 2000, even when the unemployment rate hovered for an extended period near 4 percent.) If opponents of the minimum wage are genuinely concerned about the fate of low-wage workers, they should be pushing for appropriately expansionary macroeconomic policy, not fighting policies that make low-wage workers as a whole substantially better off.

CBO and the minimum wage, Pt. 1

You wouldn’t know it from the headlines, but on almost every issue in dispute, yesterday’s Congressional Budget Office (CBO) report on the minimum wage sided with supporters of increasing the federal wage floor. The only major exception –which has so far dominated the media coverage– was with respect to the employment effects of a minimum-wage increase, where the CBO decided to saw the baby in half.

First, let’s look at all the disputes where the CBO accepted the numbers and the reasoning of supporters.

The minimum wage will directly affect tens of millions of workers.

Opponents of the minimum wage like to cite Bureau of Labor Statistics (BLS) numbers that suggest that there are only about 1.6 million minimum-wage workers, ignoring that this figure refers only to worker who earn exactly the federal minimum wage of $7.25 per hour.

CBO, instead, estimates that about 16.5 million workers would receive a wage increase because the CBO correctly factored in that millions more workers who earn between the current federal minimum wage and the new proposed level of $10.10 would also receive a pay increase.

The CBO estimate of the total direct beneficiaries is almost identical to the 16.7 million worker estimate produced by the Economic Policy Institute and used widely by supporters.

The minimum wage will indirectly raise the wages of millions more.

Opponents downplay “spillover” effects of the minimum wage, that is, they say that the minimum wage is unlikely to have any impact on the wages of workers earning above the federal floor.

The CBO, however, estimates that about 8.0 million workers who otherwise would have earned just above $10.10 in 2016 would also receive a boost after the increase, as employers adjust internal pay scales to reflect the new lower wage at the bottom.

The CBO estimate is somewhat lower than EPI’s projection of 11.1 million workers, but still constitutes solid recognition of the importance of “spillover” effects and the capacity of the minimum wage to influence the broader wage distribution.

The beneficiaries of a minimum-wage increase are overwhelmingly not teenagers.

Opponents argue that the typical minimum wage worker is a suburban teenager.

CBO’s analysis includes all workers that would receive an increase in the minimum wage and concludes that only 12 percent of these low-wage workers are teenagers, 10 percent have a college degree, and more than half (53 percent) work full time. These numbers mirror closely the demographic data produced by EPI and widely cited by supporters of the increase.

The large majority of benefits of a minimum-wage increase would go to low- and middle-income families.

Opponents claim that the minimum wage is not well targeted to low-income families. But, CBO says 65 percent of the increase in earnings would go to families with incomes below three times the federal poverty line (or, roughly, about $60,000 for a family of three). Again, the CBO figures are close to EPI’s estimates, which conclude that about 69 percent of benefits go to families with incomes below $60,000, with 23 percent going to families with incomes below $20,000.

The minimum wage will reduce poverty.

One of the sources most frequently cited by opponents of the minimum wage, David Neumark and William Wascher’s book, Minimum Wages (2008), does not pull any punches on the impact of the minimum wage on poverty: “…there is essentially no empirical evidence indicating that minimum wages have beneficial distributional effects. Instead, the research tends to find either no evidence of distributional effects or evidence that minimum wages increase poverty.” (p. 189)

But, the CBO report rejected this reading of the research and concluded that an increase to $10.10 would, on net, lift 900,000 people out of poverty.

The CBO’s estimate of the size of poverty reduction is more conservative than recent projections produced by economist Arindrajit Dube, who concluded that increasing the minimum wage would reduce poverty by between 4.6 million and 6.8 million people, after full implementation. But, CBO clearly believes that –even after employment losses– the minimum wage is an anti-poverty tool.

The minimum wage is a form of stimulus.

The CBO also acknowledged and accepted the economic logic of supporters of the minimum wage who argue that by increasing the incomes of low-wage workers –who tend to spend a very high share of what they earn– a minimum-wage increase would act as a stimulus to the broader economy.

CBO writes: “On balance, according to CBO’s analysis, raising the minimum wage would increase demand for goods and services … [by shifting] income from business owners and consumers (as a whole) to low-wage workers. Low-wage workers generally spend a larger share of each dollar they receive than the average business owner or consumer does; thus … overall spending increases.” (p. 27)

CBO’s estimate that this stimulus effect would “boost… employment by a few tens of thousands of workers in the second half of 2016” is in the ballpark of EPI’s estimate of about 85,000 jobs through minimum-wage stimulus.

EITC and minimum wage are complements.

Whenever efforts to increase the minimum wage gain momentum, opponents suggest expanding the Earned Income Tax Credit (EITC) instead. (The EITC is a refundable tax credit that boosts the after-tax wages of low-wage workers in low-income families, especially those with children.) Opponents see the minimum wage and the EITC as competing with one another. Supporters of the minimum wage, though, see the two policies as strongly complementary.

The EITC, in a straightforward way, increases the incentive to work. As a result, the EITC draws more people into the labor market and induces others who already have jobs to work more hours. The resulting increase in labor supply drives down the market wage (that is, the wage before EITC benefits are paid), which lowers employers’ labor costs. The EITC was designed as a subsidy to low-wage workers, but it also effectively functions as a tax-payer subsidy to low-wage employers. The minimum wage puts a limit on the size of that subsidy to employers.

The two policies work well together. The EITC raises wages for low-income workers to where a minimum wage of the same level would likely cause job loss. Meanwhile, the minimum wage ensures that the benefits of the EITC go to workers, not employers.

CBO acknowledges these important issues, citing research by David Lee and Emmanuel Saez, as well as Jesse Rothstein, and concludes: “An increase in the minimum wage would shift some of that benefit [of the EITC that accrues to employers, rather than to workers] from employers to workers by requiring the former to pay the latter more.” (p. 15)

On all of these issues, the CBO concluded that supporters of raising the minimum wage were right and opponents were wrong. According to CBO, raising the minimum wage to $10.10 per hour by 2016 would directly raise the wages of over 16 million workers and indirectly raise the wages of another 8 million. The beneficiaries are overwhelmingly adults, most working full-time. The benefits are well targeted, with the large majority going to low- and middle-income families. The CBO believes that the minimum wage will lift almost one million people out of poverty. The CBO also endorses both the idea of the minimum wage as stimulus and the idea that the minimum wage and the EITC are policy complements, not substitutes for one another.

Tomorrow, I’ll turn to the CBO analysis of the employment effects.

(This post originally appeared on the CEPR blog.)

The Union Advantage for Black Workers

Since at least the early 1970s –and likely earlier– black workers have been more likely than other workers to be union members.

Janelle Jones and I have a new CEPR report out today that looks at the wage and benefit boost that black workers get from union representation. We estimate that unions raise the wages of African-American workers by almost 16 percent, their chance of having employer-provided health insurance by 18 percentage points (relative to a non-union coverage rate of 49 percent), and their chance of having an employer-sponsored retirement plan by 19 percentage points (relative to a non-union rate of 39 percent).

For more details, you can read the whole report here.

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When Mandates Work

My copy of When Mandates Work: Raising Labor Standards at the Local Level, edited by Michael Reich, Ken Jacobs, and Miranda Dietz, arrived earlier this week and I finally had a chance to look through it this weekend.

The book is a collection of papers that assess the results of San Francisco’s unique experiment, conducted over  more than a decade starting in the mid-1990s, to use local action to raise the wages, benefits, and working conditions of low-wage workers through a series of legislated mandates on employers. Key elements of these efforts included a city-wide minimum wage (currently $10.74 per hour), a minimum health spending requirement (for firms with 20 or more employees), and a paid sick days law.

According to estimates by Reich and Jacobs, the full set of enacted legislation taken together raised the minimum hourly compensation cost in San Francisco in 2013 to between $10.65 and $12.83, depending on firm size. These rates were between 33 and 60 percent higher than the California minimum wage and 47 to 77 percent higher than the federal minimum wage in the same year.

Yet, as subsequent chapters of the book document in detail, separately and together these various mandates did not “diminish…the strength of [the city’s] economy” and, in particular, had no “measurable impact on employment.” Many of the measures improved productivity, reduced turnover, and changed the norms for businesses working in San Francisco.

As Reich and Jacobs note, San Francisco acted in a context of “eroding federal protections, the revival of the central city, and rising economic inequality” –conditions that prevail in many other cities across the country. As Dietz, Jacobs, and Reich conclude later:

“While there are limits to how far employer mandates can go without creating negative employment consequences, San Francisco has not reached them. The evidence cited in this book … suggests that the United States could go significantly further in protecting labor standards without harming employment.”

For a fuller description of the book, see the write-up at the Institute for Research on Labor and Employment. You can order a copy directly through the University of California Press.

Hoffman on Sabia, Burkhauser, and Hansen on the Minimum Wage

In a 2012 paper published in the peer-reviewed Industrial and Labor Relations Review (ILRReview), economists Joseph Sabia, Richard Burkhauser, and Benjamin Hansen concluded that the 39 percent increase in the New York state minimum wage in 2005-2007 (from the federal rate of $5.15 to $7.15) had “substantial adverse labor demand effects for low-skilled individuals.” (p. 350)

But, a new working paper by University of Delaware economist Saul Hoffman suggests that Sabia, Burkhauser, and Hansen’s (SBH) results were an artifact of the relatively small dataset they used to perform their analysis. When Hoffman uses a much larger version of the same data, he finds “no evidence whatsoever of a negative employment impact.”

The problem with the SBH analysis of the employment effects is that it relies entirely on a subsample of the government’s monthly Current Population Survey (CPS), not the full sample. That subsample –the Merged Outgoing Rotation Group (MORG), which is one-fourth of the full CPS– is widely used and, for most purposes, gives results that are very similar to the full sample.

In this case, however, SBH were unlucky. For every group of workers (different slices of 16-to-29 year-olds with less than a high school degree) where SBH found employment losses in the MORG sample in response to the higher minimum wage, Hoffman found no employment change (economically small and statistically insignificant changes in employment) in the full CPS.

As Hoffman explains, SBH “were not inherently wrong in using the MORG files.” They did so because the MORG data –unlike the Basic CPS– has detailed information on workers’ wages. But, as Hoffman points out, if the MORG and Basic CPS give different results for employment, a variable that is available in both data sets, then “there can be no doubt that the full CPS…is the appropriate one to rely on.” (p. 16)

To give you a feel for Hoffman’s findings, here is one of the key tables in his paper. The main column of interest is the last one, where he shows the “difference-in-difference” results, based on how employment in New York state compared before and after the minimum-wage increase (the first “difference”), relative to how employment changed in nearby New Hampshire, Pennsylvania, and Ohio, where the minimum wage was constant (the second “difference”). For each demographic group, the first row shows the SBH findings, based on the MORG and the second rows shows Hoffman’s findings using the full CPS.

Table with results of statistical analysis of employment change in New York 2004-2007

Source: Hoffman, 2014.

For 16-to-29 year olds without a high school degree, SBH estimated that the increase in New York’s minimum wage lowered employment 7.6 percentage points. By contrast, using the full CPS, Hoffman found only a negligible decline (-0.8 percentage points) that was not statistically significantly different from zero. A similar pattern held when the analysis was limited to 16-to-19 year-olds without a high school degree: the 6.4 percentage-point decline in employment in the MORG becomes a statistically insignificant -0.5 percentage-point change in the full CPS.

You can see the full set of results here.

(This post originally appeared on the CEPR blog.)

Inequality, Upward Mobility, and the State of the Union

Josh Eidelson has an interview with me at Salon today. The main focus is on what has been driving the increase in economic inequality since the end of the 1970s and what we can do to reverse the trend –all in the context of tonight’s State of the Union Address.

SOTU Minimum Wage FAQ

In Tuesday night’s State of the Union address President Obama will likely repeat the call made he made in last year’s speech to raise the federal minimum wage. Just in case, here’s an FAQ on the minimum wage.

Who would benefit from an increase in the minimum wage?

According to estimates from the Economic Policy Institute (EPI), almost 17 million workers who earn between the current federal minimum wage of $7.25 and the proposed new level of $10.10 (to be fully phased in by 2016) would see an increase in their wages. EPI estimates that another 11 million workers who earn just above the new federal minimum wage would likely get a pay increase as well.

Almost 90 percent of these workers are at least 20 years old; almost 70 percent are in families with incomes below $60,000 per year; over half work full time; and more than one-fourth have children. For complete demographic details, see this recent report by the Economic Policy Institute.

Note that the oft-cited official data from the Bureau of Labor Statistics on the “Characteristics of Minimum Wage Workers: 2012” don’t tell the whole story because those data look only at hourly workers who earn exactly $7.25 per hour. Many workers who would otherwise be earning, say, $8.00 or $9.00 per hour, however, will also receive an increase under current proposals.

Won’t raising the minimum wage hurt employment?

A report I wrote for CEPR last February reviews the major research on the minimum wage over the last several decades and concludes that: “[t]he weight of that evidence points to little or no employment response to modest increases in the minimum wage.” The full report goes into detail, but the basic explanation is that historically minimum-wage increases have had only a small to moderate impact on employers –and firms have many ways to adjust to those costs without laying off workers. In economic terms, probably the most important of these adjustments is a reduction in worker turnover, which saves on hiring and training costs and raises firm productivity.

A recent letter signed by almost 600 economists, including seven Nobel prize winners and eight past presidents of the American Economic Association, agreed that “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

Isn’t the minimum wage a blunt tool for helping low-income workers and their families?

As the Economic Policy Institute analysis I cited above demonstrates, almost 70 percent of the benefits of the minimum wage go to workers in families with incomes below $60,000 per year. Over half of the income gains go to workers in families with annual incomes of less than $40,000, and almost one-fourth to families with incomes below $20,000.

A recent, careful paper by economist Arindrajit Dube on the effects of the minimum wage on family incomes and poverty found that increases have a “small to moderate sized impact in reducing poverty” and that the benefits of the policy are concentrated in families in the bottom third of the income distribution. (For a CEPR blog post summarizing Dube’s main findings, click here. For Dube’s own blog summaries of his work, try here and here.)

The minimum wage disproportionately benefits low-income workers and their families. That the policy also helps workers and families with low incomes above the federal poverty line and even middle-income families is a feature, not a flaw of the policy.

Wouldn’t it make more sense just to increase the Earned Income Tax Credit (EITC)?

The minimum wage and the EITC are strong policy complements, not substitutes.

The EITC is a wage subsidy that benefits both participating workers and employers. Economist Jesse Rothstein has estimated that about 27 cents of every dollar spent on the EITC goes to employers, rather than the low-wage, low-income workers that are the intended beneficiaries.

Employers capture part of the benefits because the EITC has the effect of lowering market wages. The EITC is intended to increase the incentive for working. As a result, it draws more people into the labor market and causes some people to work more hours. This increase in supply, in turn, drives down the market wage (before EITC benefits are paid), lowering employers’ labor costs. (These effects are not small. Economist Andrew Leigh has estimated that “a ten percent increase in the generosity of the EITC is associated with a five percent fall in the wages of high school dropouts and a two percent fall in the wages of those with only a high school diploma.“)

With this dynamic in mind, a higher minimum wage can reduce the portion of EITC expenditures that are lost to employers by limiting the degree to which the EITC-induced increase in supply can depress market wages.

How does the value of the minimum wage today compare with the past?

The short answer is that it depends on (1) what you use as a historical benchmark and (2) how you adjust for changes in prices between the chosen benchmark and the present.

The most common historical reference point is 1968, which is the year the minimum wage reached its highest level according to all of the most common methods used to convert historical values to today’s dollars. Sometimes researchers also compare the current minimum wage to its value in 1979, the year when many indicators of economic inequality began to rise, following five decades when economic inequality was either falling or flat.

As for how best to convert historical levels of the minimum wage to current dollars, economists have used several different approaches. In a blog post last summer, Janelle Jones and I pulled together the most common of these. Putting the 1968 value of the minimum wage in today’s dollars using the CPI-U, which was the official procedure in place to measure inflation over that period, the minimum wage in 2013 would have been about $10.75 per hour –almost 50 percent higher than its current value of $7.25.

But, the Bureau of Labor Statistics (BLS) has modified the way we measure inflation in the years 1968. If we use today’s procedure and apply it back to 1968, the minimum wage in 2013 would have been about $9.50 per hour –30 percent higher than its current value.

Another common benchmark is to compare the minimum wage to what the average production worker made in 1968 (“production and non-supervisory workers” make up about 80 percent of the workforce). In 1968, the minimum wage was equal to 53 percent of the average production worker wage. In 2013, the minimum stood at just 36 percent of the average production worker wage ($20.16). If we round the 53 percent peak down to 50 percent, the 2013 minimum wage would have been just a few cents over $10.00 per hour.

A less common, but illustrative benchmark is average productivity growth in the economy. Between the end of World War II and the beginning of the 1970s, the value of the minimum wage kept pace with the growth in average productivity (the average value of goods and services produced in one hour of work in the non-farm business sector). From the early 1970s to the present, the minimum wage has trailed far behind productivity growth. If, instead, the minimum wage had continued to grow in line with a conservative estimate of productivity growth after 1968, by 2013, the minimum wage would stand at more than $17.00. (Less conservative estimates of productivity growth suggest even higher levels.)

In a blog post in 2012, Marie-Eve Augier and I compared the 2011 value of the minimum wage with where it was in 1979, using the cost of health insurance and college as a yardstick. The post contains the full set of results, but to give just one example, it took 254 hours of work to pay a year of tuition at the average four-year public; in 2011, it took 923 hours.

No benchmark is perfect, but it is compelling that all of the most commonly used reference levels suggest that the minimum wage is substantially below its historical level.

That the minimum wage is so low today is particularly striking given that minimum-wage workers are substantially older and better educated than they were in the past (for example, relative to 1979 or 1968).

(This post originally appeared at the CEPR blog.)

Union Membership, 2013

Janelle Jones and I have written up a short analysis of today’s numbers from the Bureau of Labor Statistics on union membership in 2013. Here’s the blog version, and here is the same information in pdf format.

In 140 characters or less: “In 2013, union membership was flat at 11.3 percent, on a big decline in public sector and a small increase in private sector.”