Category Archives: Economics

I try to stay on friendly terms even with people whom I disagree with emphatically on one or more subjects. A few good friends of mine on the space side of things are also very economically progressive, and recently I’ve been seeing several of them making variants on this argument:

@StephenFleming $11/hour real wage seemed to work just fine in 1968. $14/hr is about right since real per capita GDP has doubled since then.

— Chris (Robotbeat) (@Robotbeat) September 2, 2014

Basically, the inflation adjusted minimum wage was $11/hr in 1968, and that “worked” so we should be able to afford something similar today. By the way this number is bandied about, it makes it sound as though that 1968 number was a number that was sustained for a long time, and the moved away from recently. I was curious what the inflation adjusted minimum wage trend looks like, so I decided to look it up on the Department of Labor website. If you check out this table, and convert it into graph form, you get this for the minimum wage from 1938 when it started to 2012 (the last year on that particular DoL website):

Inflation Adjusted US Minimum Wage from 1938-2012 In 2012 Dollars (Source: US Department of Labor)

Doing some basic statistics on this series, the mean minimum wage over this time was $7.09/hr, slightly lower than today’s $7.25/hr. The standard deviation is ~$1.60/hr.

If you look at the trend though, the pre-WWII numbers look like outliers on the low end. What if we drop them? The new mean would be $7.62/hr (slightly higher than today’s minimum wage), but the new standard deviation would be $2.48/hr.

That means that the 1968 minimum wage was actually 2.5 sigma above the mean minimum wage for the 1950-2012 timeframe–which is pretty obvious from looking at the chart. Is picking the data point that is the largest outlier from the mean over the past 60 years really a legitimate point to extrapolate from?

More importantly, $15/hr would be 6.74 sigma above the mean for the past 60 years. Ignoring all of the other arguments for or against the minimum wage, can anyone seriously claim that being over six sigma over the mean is something where past experience can give us any confidence that this won’t cause serious problems?

$15/hr Minimum Wage in Context of 60yrs of Inflation Adjusted Minimum Wage Data

As I said, there may be other more legitimate arguments for increasing the minimum wage, even to $15/hr, but I don’t think the 1968 inflation adjusted minimum wage is a very strong argument when taken in context.

I really hope this article isn’t true. The gist of the article is that as part of minimum wage hike executive order President Obama is about to sign, the President is including physically and mentally disabled workers in the hike of wages to $10.10 for all federal contractors. As the article states:

Under a government program that dates back to 1938, employers could pay certain disabled workers subminimum wages — sometimes for a fraction of the prevailing minimum wage.

But with Obama’s executive order, that practice will be discontinued with disabled workers laboring under federal contracts in the future.

“Under current law, workers whose productivity is affected because of their disabilities may be paid less than the wage paid to others doing the same job under certain specialized certificate programs,” according to a White House memo detailing the order. “Under this Executive Order, all individuals working under service or concessions contracts with the federal government will be covered by the same $10.10 per hour minimum wage protections.”

Some readers may think “Isn’t that a great thing for disabled workers? Those who work for federal contractors will now get paid not only the same as others, but 39% higher than the current minimum wage!” The problem is hinted at in the last paragraph of the article–which is of course phrased in a way to make it look like only greedy exploiters of the disabled disagree with this move:

Operators of sheltered workshops say that including 14(c) workers in Obama’s minimum wage hike would inevitably lead to many disabled people being pushed out of work.

My question is does anyone who has any economic background seriously think that this will result in anything other than most disabled people working for federal contracts losing their jobs? If they had say increased the minimum wage for disabled people only by the same 39% as the increase for other workers, it might not be so bad. But by making disabled workers just as expensive now as non-handicapped workers, you’ve increased their effective cost even more. With unemployment levels where they are now, if you’re going to be forced to pay everyone the same $10.10, what incentive do you have to get any but the best workers for the job? Especially when you’re being forced to pay wages higher than comparable non-federal jobs, thus attracting tons of job applicants from those fortunate enough not to suffer from physical or mental handicaps.

While for non-disabled workers, you might be able to make a case that somehow minimum wage increases won’t lead to unemployment, I don’t think any economist with any shred of intellectual honesty could think that this won’t lead to huge dis-employment effects for one of the most vulnerable groups in society.

I know the president means well. He’s never shown himself to have any sort of clue about economics, but I don’t doubt his good intentions. It’s just unfortunate that so many disabled people, who already have a tough enough life as it is, are likely going to lose their livelihoods just so the president can feel good about himself, and score political points with his fellow economic illiterates in his base.

The one saving grace of this travesty is that private companies that don’t work on federal contracts aren’t currently effected by this executive order. I sincerely hope for the sakes of the disabled, that those companies who do go out of their way to provide disabled workers a job can soak up the jobs that are going to be lost due to this misguided executive order.

[Update: 7:30pm]

In addition to the likely severe dis-employment effect we’re likely to see for workers with disabilities, I wouldn’t be surprised if we saw some of the following moves in the near future:

1. An increased equal opportunity crack-down by the government on firms that reduce the fraction of their labor provided by workers with disabilities.
2. Executive orders mandating quotas (or increasing quotas) for the percentage of disabled workers federal contractors have to employ.
3. Subsidies (or increased subsidies) for companies that employ more disabled workers.

None of this should be too surprising. Government price controls like this almost always lead to more and more interventions to paper over the mistake made by the first intervention.