The Issue Isn't the Minimum Wage, but the Effective Minimum Wage Population
The minimum wage has recently been in the news because of the fast-food workers’ strike for $15 an hour. Critics claim that would cause unemployment. There is a tipping point, but we don't really know where that is. The principal reason minimum wage increases have not led to disemployment effects is that the minimum has been so far below a market clearing wage. In the case of the fast-food industry increases, so long as they are below the tipping point, they are likely to lead to increases in employment because the fast-food industry is a labor monopsony. That is, they are the principal employers of minimum wage workers.
The issue, however, is not those who earn the statutory minimum wage, but those who earn the “effective minimum wage,” which may be defined as any wage between the statutory minimum and a wage which is 50% of average annual hourly earnings. Historically, efforts were made to keep the minimum at 50% of average annual earnings. Data from the Current Population Survey (CPS) for 2012 shows that the average annual hourly earning was $21.43. This means that the statutory minimum wage was 33.8% of the average annual hourly earning. It was 48.7% of the median hourly wage of $14.90. Had the minimum wage been indexed to inflation and remained at 50% of the average annual hourly wage, it would have been $10.72. Were the statutory minimum wage to be increased $10.72, it would still be below a market clearing wage, and therefore not likely have adverse employment consequences.
A look at the effective minimum wage population reveals a different picture presented by critics of the minimum wage. Critics often claim that those who earn the minimum wage are primarily teenagers, and otherwise secondary earners. That is, they are not the primary earners in their households. It is true that 17.1% of effective minimum wage workers were 18–24 years old compared to 12.1% of all workers. But 67.6% of effective minimum wage workers were between the ages of 25 and 54, which is only 3.3% less than all workers . In 2012, 47.5% of all workers were women, compared to 56.5 of effective minimum wage workers, which is 18.9% higher. Some 7 percent of all workers were in food preparation and service-related occupations, but 12.5% of effective minimum wage workers were in these occupations, which was a difference of 78.6%. Also a higher percentage of effective minimum wage workers were black. Consider that the percentage of black effective minimum wage workers was 20.9% higher than all black workers, but the percentage of black workers earning more the average annual hourly wage was 38.2% less.
Of course critics might point to low-wage workers’ lack of skill. On average, those earning an effective minimum wage are less educated in that more have no more than a 12th grade education and fewer have associate's, bachelor's and/or graduate and professional degrees. But the common portrait of minimum wage workers being teenagers looking for some funny money simply does not hold here. Those who earn an effective minimum wage are more likely to be women, black, in their prime working years and working in food preparation and service-related occupations.
Therefore, when fast-food workers go on strike for wages that appear to be in lines with the median hourly wage, we as a society should consider just who these workers are. Those who like to dismiss them as secondary earners are trying to obscure the moral issue here, which is if they don’t need the money, then there is no good reason to pay a higher wage that may lead to lower employment. Once it becomes clear that not only might there not be adverse employment effects, but that these are workers who genuinely may need the money—and being a secondary earner in no way means that person’s income is not essential to the support of that person’s household—the moral imperative to raise the minimum wage becomes even stronger.


