The Minimum Wage Issue...Again

In his "State of the Union" show on February 12, 2013, Barack Hussein Obama said:

Even with the tax relief we've put in place, a family with two kids that earns the minimum wage still lives below the poverty line.  That's wrong.

For once I agree with our Dear Leader -- kinda.  Yes, it's wrong, but it's wrong because Obama is wrong.  For two reasons.

First, very few families with two kids earn the minimum wage.  From the Bureau of Labor Statistics (BLS), we get these observations:

Minimum wage workers tend to be young.  Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the Federal minimum wage or less.

Among employed teenagers paid by the hour, about 21 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over.

Data are for wage and salary workers age 16 and over and refer to earnings on a person's sole or principal job.   Hourly earnings for hourly paid workers do not include overtime pay, commissions, or tips received.

The above observations are generalizations, so let's (still using BLS numbers) get as specific as we can.  From this source (Table 8), we learn that 12.8 percent of minimum wage-earners are "married with spouse present."  Obama said "a family with two kids."  If this BLS category constitutes a "family" (BLS numbers don't provide number of kids), then we are talking about 460,800 people (12.8% of 3.6 million).  But, given the current family situation, let's include the "Never Married" category (again, no kids numbers).  They constitute 30.2 percent of minimum wage-earners, or 1,087,200 people.

Wow!  One million five hundred forty-eight thousnd people (generously) fit Obama's description of "the wronged."  There are currently 246,567,000 workers in the USA.  So the wronged make up 0.627 percent of those employed.  But to hear the Democrats (and their MSM lapdogs) demagogue the minimum wage issue, you would think that our society would be ruined if they didn't receive an increase.

Second, let's look at the "tax relief" of which Obama spoke.  Minimum wage-earners actually pay a "negative" tax.  A person making the federally mandated minimum wage of $7.25/hour will make $15,080/year (assuming he/she works 2,080 hours -- 40 hours/week times 52 weeks).  He/She is in the first income quintile according to a recent Congressional Budget Office (CBO) report (Table B-1).  According to the same report, he/she pays an income tax rate of -9.2% (Table 2), or $1,387.  He/she pays no income tax on the $15,080, and receives $1,387.  So the effective minimum wage is $7.91/hour ([$15,080 + $1,387]/2,080).  But wait!  There's more!

That minimum wage figure doesn't include all the other transfers (average $22,700 per household -- Box 1 in the CBO report).  Government Transfers (Government transfers include cash payments and in-kind benefits from social insurance and other government assistance programs) for the first quintile was $22,700 ($14,200 for Social Security and Medicare plus $8,500 for Other Transfers).

Including the government transfer amount pushes the effective minimum wage to $18.83/hour [($15,080 + $1,387 + $8,500 + $14,200)/2080], or about 78 percent of the overall average hourly wage rate of $24.15.  The effective wage is more than what Obama is currently supporting ($10.10/hr), and even more than what unions are calling for ($15/hr).

Further, the majority of those earning minimum wage don't have even a high school diploma (Table 6 -- 38 percent).  Now, don't get me wrong here.  I'm not equating high wage exclusively with education attainment (although they do go together).  I'm saying that employers look at education as a surrogate for "effort that can be expected" when making wage decisions.  So an hourly wage of $18.83/hour ain't bad for someone with (at best) a poor education.

Income inequality does exist.  On that fact there is no dissent.  So why does income inequality exist?  In her article "Why Does Income Inequality Exist?," Dr. Anne Bradley explores the reason from a religious perspective:

Income inequality ... is a fact of economic life.  Different people are born with different gifts and choose to pursue them differently.  Those gifts carry unequal earthly rewards, one of which is in the form of income.

... income inequality is an economic reality manifested from the Biblical principle of uniqueness.  We are created differently, and some of us will earn higher incomes than others.

Bottom line: God made us all different.  But that reason will never do for Progressives/Liberals/Democrats (PLDs) or the MSM, since it cites God.  OK, PLDs and MSM, your turn!  Offer another reason rather than just demagoguing the current situation.

Why bring the minimum wage subject up now?  Again, two reasons.

First, in an attempt to deflect attention from the disaster that is ObamaCare, Obama has begun to speak about "income inequality."  The president, on Wednesday, December 4, 2013, in Anacostia (one of the poorest sections of Washington, D.C.), called income inequality "the defining challenge of our time:

The basic bargain at the heart of our economy has frayed[.] ... [I]ncreased inequality ... pose[s] a fundamental threat to the American dream, our way of life, and what we stand for around the globe.

What Obama and PLDs do is pretend to do something about income inequality so that the support of the poor and minorities continues.  He and they do nothing to change the inequality permanently.  They never examine why it exists.  All they have to do is look at BLS numbers (presented above).

About the minimum wage, Obama, in the same speech, said:

... it's well past the time to raise a minimum wage that, in real terms right now, is below where it was when Harry Truman was in office. ...

I'm going to keep pushing until we get a higher minimum wage for hardworking Americans across the entire country.  It will be good for our economy.  It will be good for our families.

Do Obama and Democrats really believe that raising the minimum wage will narrow income inequality?  The minimum wage has been raised 24 times in the past, most recently on July 24, 2009.  Yet we still have income inequality.  If it didn't work in the past, why do PLDs think it will it work now?  They don't!  But they know that most of their voters don't know that it won't work now.

James Sherk, holder of a master's degree in economics (so he's at least thought about it, unlike most knee-jerk liberals), said:

Supporters of the minimum wage intend it to lift low-income families out of poverty. Unfortunately, despite these good intentions, the minimum wage has proved ineffective at doing so.

Minimum wage positions are typically learning wage positions - they enable workers to gain the skills necessary to become more productive on the job. As workers become more productive they command higher pay and move up their career ladder.

Studies also find higher minimum wages do not reduce poverty rates.  Despite the best of intentions, the minimum wage has proved an ineffective -- and often counterproductive -- policy in the war on poverty.

I'll bet we don't hear from Sherk in the MSM during the 2014 elections.

Second, Democrats plan to buy votes by running on the minimum wage issue.  From Hot Air, in an article entitled "Can Democrats make 2014 about the minimum wage?," we get these quotes:

... assailing Republican opposition to hiking the minimum wage could be a more potent Democratic wedge than immigration reform[.]

It's a tried and tested part of the liberal playbook to use the politics of class warfare[.]

From Eric Morath at The Wall Street Journal, we get this (emphasis mine):

Democrats are likely to make the [minimum wage] rate, and expected resistance from the GOP, an issue in the 2014 elections.  Mr. Obama called for a wage boost last week to help narrow economic inequality.

It's time to get the complete story out.  Tell a PLD what Sherk said, and that the effective present minimum wage is even higher than what Obama proposes.  Tell people why income inequality exists.  You have the information.  But I'm betting a PLD won't listen to you, and he/she certainly won't do any research, even if you provide sources.

Dr. Warren Beatty (not the liberal actor) earned a Ph.D. in quantitative management and statistics from Florida State University.  He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision-making.  He has been a consultant to many small businesses and is now retired.  Dr. Beatty is a veteran who served in the U.S. Army for 22 years.  He blogs at