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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The White House’s Case for the Minimum Wage, in Two Terrible Charts



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Yesterday, the White House promoted some new material in support of its proposal to raise the minimum wage from $7.25 an hour to $10.10, including launching a new site with some charts that . . . don’t do such a great job of making their case. First they tweeted out this chart — you may notice some arithmetic problems (click on the charts to enlarge):

The numbers don’t add up to 28 million, and somehow, 3.4 million is 12 percent, 16 percent, 10 percent, and 18 percent of the beneficiaries, all at once. But they did replace it with a corrected chart, soon enough:

But does this really make a good case for the minimum wage, especially as a solid way to fight poverty? Is it a good way to “help families,” which was the first benefit the president touted in his state of the union? By this chart, with the numbers the CEA came up with, just 26 percent of workers who will benefit from a minimum-wage hike have children. Fully 44 percent of them are single — and a surprising 18 percent of them are married without kids and 12 percent are under 18, both decidedly non-dire situations to be earning $7.25 an hour (since there are other earners in those families). Obviously, raising the minimum wage would raise the incomes of a lot of struggling American households, but the White House’s chart makes almost as clearly as any work by conservative opponents of the minimum wage that it’s not remotely well-targeted to help working families or the very poor. It would boost the wages of “all types of households,” but shouldn’t poverty interventions be targeted at the ones that need it most?

This gets odder when one looks at this chart:

Let’s count the problems:

1. The chart doesn’t show the real value of the minimum wage having “fallen by a third since its peak in 1968.” It’s dropped one-fourth, not one-third, since 1968, by their reckoning, as the y axis shows (from about $20,000 a year for a full-time worker in 1968 to about $15,000 now).

2. Their inflation adjustments are too big: The economists at the Council of Economic Advisers who put this chart together know that the measure they used above (called CPI) overstates inflation over the long term (in the short term the difference is no big deal), which is why the Federal Reserve and the CBO prefer using a different measure, called PCE. Under the better measure, the minimum wage hasn’t dropped nearly as much as it has on this chart, and remains above its historical average, though about 12 percent below the 1968 peak (half the drop the above chart shows).

3. The only comparisons offered to the earnings of one full-time minimum-wage earner are the poverty line for a family of 2, 3, or 4 — when 56 percent of minimum-wage earners are under the age of 18 or live in a family of 1. (A single person earning the minimum wage full-time earns 30 percent more than the poverty line — the problem for many poor single people is that they aren’t working enough, not that their per-hour wages are too low.)

4. Of those minimum-wage earners who actually are adult earners supporting children — remember, just 26 percent of the earners the CEA says will see benefits from the president’s proposal — many of them are not the bread-winners in the family. There are often other earners to augment their incomes, or a higher earner altogether. It makes little sense to compare, then, the wage they earn with the poverty line for the whole family.

5. As Twitter user Bill Walsh points out, their poverty lines are out of whack, too. For some reason, the jump from the poverty line for a family of 2 to a family of 3 looks much smaller than the jump to that for a family of 4 — when they’re the same, $4,020 in 2013. The poverty line for a family of 2 and the poverty line for a family of 3 are both between $15,000 and $20,000, as the chart shows, but they’re not precisely where they are on this chart.

6. It doesn’t count the earned-income tax credit, which boosts the incomes of everyone who earns the minimum wage, and especially those who live in families of two, three, or four, depending on the number of kids. Taking that adjustment, which workers receive when they file their taxes, working families earning the minimum wage (which the White House talks about a lot, though as the first chart shows, they’re not the representative minimum-wage earners) are doing better than they did in 1968:

(And that’s ignoring all the non-cash benefits they receive, which would boost anyone making the minimum wage over the poverty line).​

To toss the CEA a bone, their x axis is pretty long, especially with the poverty lines drawn right over the minimum wage — if they’d made the chart narrower like this one, it would actually look like the minimum wage has been significantly eroded by inflation, whereas here you have to trust their (incorrect) one-third number because, to me at least, the yellow minimum-wage line doesn’t look like it’s dropped all that much.

None of this is to say that adults earning the minimum wage, whatever family situation they’re in, aren’t struggling — they surely are. But it is fairly clear, even as the White House depicts it, that the minimum wage is a poorly targeted way to lift the incomes of the poor. There are much, much better ones — the aforementioned earned-income tax credit especially. Moreover, many economists sympathetic with the president will sign onto the idea that there is “minimal” job loss associated with a higher minimum wage, but the size of the increase the president is calling for (39 percent) would be the largest minimum-wage hike in the history of the universal federal minimum wage and would set it higher than it is now in any state, including states with incomes well above the national average. So, you might expect job losses to be non-neligible this time around — and the benefits, as the CEA inadvertently showed, aren’t usefully distributed.



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