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The point about minimum wages

Some people seem to have misunderstood the point about this post on minimum wages. The point was simple. A lot of people I speak to, not just "regular" students, but legislators and journalists who I sometimes teach, think that only regulations or unions keep businesses from exploiting workers. They are shocked to discover that less than 10% of the private work force is unionized and that somehow, most workers, something over 96%, maybe closer to 99%, manage to make more than the minimum. Usually half of these groups when I survey them think that at least (at least!) 20% of the work force earns the minimum wage or less and that only legislation keeps it from being lower. But legislation turns out to be relatively unimportant compared to supply and demand—that is, competition. if you try to pay less than the going rate for the skills you want to hire, you can’t attract workers.

Meanwhile, Tim Worstall points out something I missed:

Unfortunately, on the page he’s taken his information from he’s missed one thing which makes his case even stronger.

Nearly three in four workers earning $5.15 or less in 2006 were
employed in service occupations, mostly in food preparation and service

That’s your waitron units and barkeeps folks. And what do we know
about people who do these sorts of jobs? Well, perhaps you have to have
actually done them (as I have, everything from the graveyard shift in a
Denny’s to tending bar around the corner from this guy’s
place): they all make tips. In fact, so much so that there is (or at
least used to be when that BLS report was prepared) a special minimum
wage for those in such jobs, one lower than the official Federal
minimum wage.

For example, way back when, the min. wage was $3.35 an hour. Waiters
got $2.01. You didn’t really care because even serving pancakes at 5 am
you made another $25-$30 a shift ($50-$150 in a decent place). Barkeeps
got $3.35 plus tips.

The BLS numbers are reporting what employers paid employees, not
what people are actually earning. So we might in fact say that while
the number being paid the minimum wage or less is 2.2% of the workforce, the number actually earning that figure is more like 0.5%.


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