Has boosting the U.S. minimum wage from $4.25 per hour in 1994 to today's $7.25 per hour helped or hurt the U.S. economy?
To answer this question, we'll be tapping the U.S. Census Bureau's data on the incomes earned by 15 to 24 year old Americans in 1994 and 2011 (which until this September represents the most recent year for which this data is available). Specifically, we'll be considering the size of the Age 15-24 population, the number of 15-24 year olds with incomes and, of course, the federal minimum wage that applied in each of those years.
Because we're spanning so much time, we'll also need to account for the effects of inflation on the effective level of the U.S. minimum wage. Our first chart, which we created for a previous post on the topic, shows the original and inflation-adjusted levels of the U.S. federal minimum wage for both 1994 and 2011 in terms of constant 2011 U.S. dollars:
Our next chart illustrates the change in the number of 15 to 24 year olds who were either counted as having incomes, or having no income, in both 1994 and 2011:
This data provides enough information for us to construct a supply and demand diagram that will allow us to estimate if any deadweight loss occurred in the U.S. economy as a result of the change in the U.S. minimum wage from 1994 to 2011:
A deadweight loss is said to occur whenever economic activity that might otherwise have occurred is prevented from occurring because of policies that interfere with the natural functioning of a market economy. In this case, the policy in question is whether the minimum wage has been set too high, which then prevents people from being able to accept work at wages below the level set by the federal government, except under some very limited conditions permitted by the government.
It's time to run the numbers and see what shakes out!
Using our tool's default values, our tool estimates that the deadweight loss to the U.S. economy as a result of the increase in the U.S. federal minimum wage from $4.25 per hour in 1994 to $7.25 per hour in 2011 is $485,430 per hour (in terms of constant 2011 U.S. dollars).
Americans between the ages of 15 and 24 worked an average of 19.2 hours per week in 2011. Multiplied over a 52 week year puts the estimated deadweight loss of the minimum wage from $4.25 per hour in 1994 to $7.25 per hour in 2011 at $483,391,573.
In other words, if not for the increase in the minimum wage, the U.S. economy would be nearly half a billion dollars bigger today.
And then, there's the little matter of the 6,092,685 increase in the number of teens and young adults from 1994 to 2011 who have no income.
Here, we measured the "surplus" of teens and young adults without income as being the difference between the number of 15-24 year olds with incomes in 2011 and the number of teens and young adults in 2011 who might have income if only the same percentage of those Age 15-24 that had incomes in 1994 also did in 2011. This makes our estimate of the surplus of 15-24 without incomes in 2011 fall on the conservative side, as the actual size of the increase in the non-income earning Age 15-24 population from 1994 to 2011 was 7,835,000.
This increase in the number of teens and young adults without incomes also has burdens, which are imposed upon their families and increasingly upon taxpayers in the form of the welfare and higher education programs that are proving to be poor substitutes for real world job experience.
If you doubt that, just consider the large percentage of college graduates today who are only being hired into jobs that don't require the degrees they got, and for which the U.S. government is borrowing money to provide them with grants and student loans. And that's not even considering the cost of the food stamps and other welfare programs needed to feed, clothe, house and otherwise care for them.
All of which could be reduced if only they could earn just a little bit of income on their own to offset the increased burden of caring for them that is being imposed upon others.
Finally, our analysis in this post provides enough information for us to quantify the likely impact of President Obama's proposed increase of the U.S. federal minimum wage to $9.00 per hour upon teens and young adults. We'll be presenting that analysis soon!...
Previously on Political Calculations
- Triangulating the Deadweight Loss of Cash for Clunkers - This is the tool where we introduced the math that's under the hood of this tool!
- Teens, Young Adults and President Obama's Minimum Wage - This is the analysis where we introduced the data used in this tool, which represents the U.S. Census Bureau's oldest and most recently reported age-related income data published in a digital data-friendly format!
- The Age Demographics of Minimum Wage Earners - This visual study explains why we focus so much on teens and young adults where the minimum wage is concerned - Americans between the ages of 15 and 24 account for roughly half of all people who earn the federal minimum wage or less!
Data Sources
U.S. Census Bureau. Current Population Reports. Consumer Income. Series P60-189. Table: PINC-01. Selected Characteristics of Persons 15 Years and Over,By Total Money Income in 1994, Work Experience in 1994 and Sex (Numbers in thousands). September 1995.
U.S. Census Bureau. Current Population Survey. 2012 Annual Social and Economic Supplement. Table: PINC-01.Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2011, Work Experience in 2011, Race, Hispanic Origin, and Sex, Total Work Experience, Both Sexes, All Races. [Excel Spreadsheet]. September 2012.
Sahr, Robert. Inflation Conversion Factors for Years 1774 to Estimated 2022. [PDF Document].