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Monday, May 1, 2023

Two Interesting Facts about Minimum Wage

People often insist that we need to raise the minimum wage, that no one can live on such a pittance as the minimum wage affords. The impression that we sometimes have is that a vast swath of Americans are slaving away and scraping by on $7.50 an hour, but evidently that's not true.

Economist Michael Munger, cited in a brief piece at the Wall Street Journal (paywall), writes that he asks his students a couple of questions about the minimum wage. The first one is this:
What percentage of workers in the U.S. work at the minimum wage?
His students usually give him answers between 20 percent and 40 percent, but the correct answer is fewer than 2 percent.

And, although Munger didn't mention it, many of the fewer than 2 percent are kids working for pocket money. In other words, the belief that millions of American are trying to support a family while stuck in dead-end minimum wage jobs is a myth.

The second question was this:
If you have a job in the U.S., at the minimum wage, where does that put you in the world income distribution?
Munger says that the answer he gets from his students is usually around 20 percent, but the correct answer is 85%. He adds:
It quickly gets real, real quiet in the auditorium. All through high school the kids have earnestly been told that poverty should be defined in relative terms, and that the US system is cruel to the poor.

The fact that a minimum wage job puts you in the top fifth of the world income distribution . . . and that 98 percent of [working] Americans make more than the minimum wage, creates enormous cognitive dissonance.
There are probably a lot of things young people learn from our news and social media that really aren't true at all. This is one reason it's wise to be skeptical of what we read and hear from the media until we've had solid confirmation from reliable sources.