The National Average Minimum Wage

Not long ago, we featured a pretty cool looking chart illustrating the many minimum wages that have applied at the federal and for various states in the U.S. since 1994. Today, we're streamlining things a bit to determine the national average minimum wage for the United States!

To do that, we've calculated the percentage share of each state's population with respect to the combined population of all 50 states and the District of Columbia, and multiplied each state's share of the U.S. population by the greater of either the federal minimum wage or the state's minimum wage. We then summed up the results for each year from 1994 through 2012 to find the population-weighted national average minimum wage for the United States.

Those basic results are presented below:

And here are the results for each year again, this time adjusted for inflation to be in terms of 2012 U.S. dollars!

In these charts, the biggest deviations from the federal minimum wage in any given year can be mainly attributed to large population states that have set their minimum wages well above the level set by the federal government. The largest deviation occurred at the beginning of 2007, when states like California ($7.50), Florida ($6.67), Illinois ($6.50), Massachusetts ($7.50), New York ($7.15) and Washington ($7.93) had set their minimum wages significantly above the U.S. minimum wage of $5.15 per hour.

Together, these six states accounted for almost one-third of the U.S. population in 2007, which was enough, when combined with the higher-than-federal minimum wages of smaller population states to boost the population-weighted national average minimum wage to $6.35 per hour, 23% higher than the federal minimum wage on 1 January 2007.

The timing of when these large population states increased their minimum wages over the years also explains an apparent anomaly for those analyzing U.S. national employment data. Namely, why increases in the federal minimum wage would not appear to generate the large reductions in the number of the employed that might be expected in economic theory.

Here, by increasing their minimum wages in advance of when increases in the federal minimum wage have taken place, many states would bear the brunt of reduced employment earlier as a result of this action. By the time the federal minimum wage was increased with respect to the earlier actions of these states, a good portion of the job loss that might reasonably be expected if it were the only minimum wage in the U.S. would have already taken place.

We think that factor goes a long way to explaining why the Age 15-24 population of the U.S. with incomes saw a net decline during the years from 2004 through 2006, which were otherwise characterized by solid economic growth in the U.S.

It would seem that all it took to make that decline happen during these years was for the large population states of Florida, Illinois, New Jersey, New York and Wisconsin to rashly boost their minimum wages above the federal minimum wage level of $5.15 per hour, as those five states together account for over one-fifth of the U.S. population.

Meanwhile, virtually all of the net decline in the number of Americans between the ages of 15 and 24 with incomes during these years occurred at the levels of annual income that would be most directly affected by the minimum wage increases that occurred in each of these states.

(Note: The data for the Age 15-24 segment of the U.S. population is the most likely to show the real effects of minimum wage increases, because American teens and young adults make up approximately half of all individuals earning wages at or near the federal minimum wage level.)

By the time the federal minimum wage was increased to $5.85 per hour nearly two-thirds of the way through 2007, the impact that might otherwise have occurred was muted, which we see in the number of American 15-24 year olds with incomes declining much less than might otherwise have been expected from the 13.5% increase in the federal minimum wage that took effect on 24 July 2007.

And that's what separates our minimum wage impact analysis from other efforts that only look at the federal minimum wage - we've accounted for the different minimum wages that most affect the population of the United States!

The Demand Curve for the U.S. Minimum Wage

How much will President Obama's 2013 State of the Union proposal to increase the federal minimum wage to $9.00 per hour affect the teens and young adults who make up roughly half of all those who earn the minimum wage or less in the United States?

We've been dancing around that question as we've been considering the recent history of minimum wage increases in recent weeks, but today, we're finally going to answer it!

Or rather, you are, because we've built a tool that you can use to do the math for yourself! Here, you just need to enter either President Obama's or your own proposed minimum wage (ideally in terms of constant 2011 U.S. dollars), and our tool will do the rest!

Minimum Wage Data
Input Data	Values
Proposed Minimum Wage [U.S. Dollars per Hour]

Approximate Quantity of Americans Age 15-24 with Incomes
Calculated Results	Values
... After Minimum Wage Increase

For those of you accessing this tool through a site that republishes the RSS feed for our posts, click here to access the original functioning version of the tool above!

Using President Obama's proposed minimum wage of $9.00 per hour, we estimate that the number of 15-24 year old Americans with incomes would decline by over 1.8 million from 2011's figure of 26,014,000 to the 24,192,580 figure estimated by our tool above, assuming no major shifts of the demand curve for American teens and young adults.

Here's how we get to that figure. We built a demand curve for the minimum wage using the income data that the U.S. Census Bureau has collected and reported in an easy-to-use digital format for each year from 1994 to 2011 (until this September, this will be the most recent year for which this data is available.)

In doing that, we considered the timing of when changes in the U.S. federal minimum wage occurred in the years they were implemented, and weighted them accordingly.

And then, we considered the situation where a number of states have set their minimum wage levels above the federal minimum wage. Since the minimum wage that applies in those states is the greater of the federal or state minimum wage level, we then took into account the percentage of the U.S. population that might be affected by that difference, and weighted the effective national minimum wage level by the affected state populations exposed to higher minimum wage levels as well.

Our last step was to then adjust the resulting effective national minimum wage level for inflation, with the results recorded in terms of constant 2011 U.S. dollars.

The results of that hour's worth of work on our part is presented in the chart below, in which we visualize the demand curve for the U.S. minimum wage.

We next identified the years that coincide with the Dot-Com Bubble, which ran from April 1997 through June 2003, since the effect of the bubble first caused the demand curve for Age 15-24 Americans to shift to the right during the inflation phase of the bubble (April 1997 to August 2000) before shifting back to the left during the deflation phase of the bubble (August 2000 to June 2003) and ending up roughly where it started.

Having identified the years that were affected by the dynamics of the Dot-Com Bubble's inflation and deflation phases, we then excluded the data for these years from the linear regression analysis of the remaining data, as they are clearly the result of an atypical situation for the U.S. economy. Here, we assume that the demand curve follows a mostly linear path for the prices and quantities involved outside the years affected by the Dot-Com Bubble.

And that's how we created the demand curve for teens and young adults based on the empirical evidence we've documented below!

Now, some of our economically-minded readers might wander if using the minimum wage per hour is the right "price" to use in our chart.

It is, and here's why. Since we're spanning the years of 1994 through 2011 in our analysis, we considered the changes that have been recorded with respect to the distribution of the total money income earned by Age 15-24 individuals over that time. We adjusted the 1994 distribution of income for this age group to be in terms of constant 2011 U.S. dollars, then determined the net change in the number of individuals at a number of income increments between 2011 and 1994. The results of that exercise are presented graphically below:

From 1994 through 2011, the most recent year for which the data is currently available at this writing, the U.S. Census Bureau reports that there has been a net decrease of 1,012,000 teens and young adults with incomes. As you can see in our chart above, virtually all of the negative change in the number of Americans Age 15-24 with incomes has occurred at annual incomes that fall below $15,000.

At the current U.S. federal minimum wage of $7.25 per hour, the annual income earned by an individual earning that wage today while working full-time (40 hours per week), year-round (52 weeks) is $15,080. That means that virtually *all* of the decline in the number of Americans Age 15-24 with incomes from 1994 to 2011 have occurred at the income levels that were the most directly impacted by minimum wage increases over that time.

Recall also that after adjusting for the effect of inflation, the total amount of income earned by American teens and young adults in 1994 and in 2011 is virtually identical. Increasing the minimum wage does not increase the amount of money available to pay wages and salaries, so it provides no benefit to the nation's GDP.

In effect, what this empirical data demonstrates is that increases in a price floor like the minimum wage simply locks out those who find themselves falling below the floor from the job market, without doing much to really benefit those who are at or above that threshold.

Maybe a good question to ask right now is just why President Obama hates American teens and young adults so much?...

On a closing note, using the President's proposed minimum wage level of $9.00 per hour and the quantity of 24,192,580 teens and young adults estimated in our tool above in our economic deadweight loss analysis tool puts the approximate deadweight loss to the U.S. economy with respect to 1994 at just over $5.6 million per hour in terms of 2011 U.S. dollars. And that doesn't even begin to reflect the increased costs to U.S. families and taxpayers who will be additionally burdened to support this portion of the U.S. population.

Data Sources

Southern Regional Education Board. Population and Demographics. Age Distribution of the Population - Total Population. [Excel Spreadsheet]. June 2012. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 1994, Work Experience in 1994 and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 1995, Work Experience in 1995 and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 1996, Work Experience in 1996 and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 1997, Work Experience in 1997 and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 1998, Work Experience in 1998 and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 1999, Work Experience in 1999, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2000, Work Experience in 2000, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Detailed Person Income (P60 Package). Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2001, Work Experience in 2001, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2002, Work Experience in 2002, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2003, Work Experience in 2003, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2004, Work Experience in 2004, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2005, Work Experience in 2005, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2006, Work Experience in 2006, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2007, Work Experience in 2007, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2008, Work Experience in 2008, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2009, Work Experience in 2009, Race, Hispanic Origin and Sex. Both Sexes, All Races. [HTML Document]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01 - Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2010 (Based on Census 2010 Population Controls), Work Experience in 2010 (Base on Census 2010 Population Controls), Race, Hispanic Origin and Sex. Both Sexes, All Races. [Excel Spreadsheet]. Accessed 6 March 2013.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic (ASEC) 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. Both Sexes, All Races. [Excel Spreadsheet]. Accessed 6 March 2013.

U.S. Department of Labor. Bureau of Labor Statistics (BLS). Current Price Index - All Urban Consumers. Not Seasonally Adjusted. [HTML Document]. Accessed 6 March 2013.

U.S. Department of Labor. Wage and Hour Division (WHD). Changes in Basic Minimum Wages in Non-Farm Employment Under State Law: Selected Years 1968 to 2013. [HTML document]. Accessed 6 March 2013.

U.S. Department of Labor. Wage and Hour Division (WHD). History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938-2009. [HTML Document]. Accessed 6 March 2013.

Visualizing the Minimum Wages in the U.S.

There is more than one minimum wage in the United States.

In 2013, no fewer than 19 states and the District of Columbia have set their statutory minimum wages to be higher than that set by the U.S. federal government. In these states, the higher minimum wage set by the state rules the jobs scene for employees and employers.

For the other 31 states, whose legislatures might have set lower minimum wage levels or who even have no minimum wage level set by state law, except for some pretty limited circumstances, the U.S. federal minimum wage rules.

Our chart below visualizes how today's "higher-than-federal" minimum wage mandating states have changed their minimum wages over time, from 1994 through this point in 2013:

What that all means is that the effective minimum wage across the entire United States is somewhat higher than that set by the U.S. federal government. To find out what that really is, which would be necessary for any serious analysis of the impact of anything other than the timing of a minimum wage increase on the entire U.S. economy, we would need to take into account the minimum wages of states with higher minimum wages by weighting the average minimum wage in the U.S. by state population.

Which is something we might need to set some time aside to do one of these days!

Reference

U.S. Department of Labor. Wage and Hour Division. Changes in Basic Minimum Wages in Non-Farm Employment Under State Law: Selected Years 1968 to 2013. [HTML document]. Accessed 6 March 2013.

The Deadweight Loss of Minimum Wage Hikes

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!

Minimum Wage, Population and Income Earning Data
Input Data	Old	New
Minimum Wage per Hour [Constant U.S. Dollars]
Population Size
Number of Population with Income

Potential Surplus of Non-Income Earners and Deadweight Loss
Calculated Results	Values
Change in Number of People Without Incomes
Deadweight Loss per Hour [U.S. Dollars]

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].

Teens, Young Adults and President Obama's Minimum Wage

What effect might President Obama's 2013 State of the Union address proposal to increase the U.S. federal minimum wage from $7.25 per hour to $9.00 per hour have upon teens and young adults?

That question is especially relevant because teens and young adults between Age 15 and 24 represent approximately half of all minimum wage earners in the United States, not to mention making up a disproportionate share of individuals who earn wages just above that level.

To find out, we tapped the U.S. Census Bureau's detailed income data for the Age 15-24 population that it collected in 1995, when the U.S. federal minimum wage was $4.25 per hour, so we can see what effect raising the minimum wage to today's $7.25 per hour had on this age group through the data the Census Bureau collected in 2012 [1].

Our first chart adds up all the income earned by individuals between the ages of 15 and 24 in the United States in both 1994 and 2011 [2], both in originally reported values and in terms of constant 2011 U.S. dollars:

This result is pretty remarkable. In nominal terms, the aggregate income earned by all 15-24 year olds in 1994 adds up to more than $236.8 billion, while the aggregate income of those Age 15-24 in 2011 adds up to over $358.8 billion. But when we adjust for the effect of inflation, we see that the total amount of money paid out to 15-24 year olds in each year is almost identical!

In a sense, it is almost as if the employers of U.S. teens only have a fixed amount of revenue that they can use to pay them.

Next, we determined what the minimum wage for 1994, 2011 and the President Obama's proposed minimum wage in 2013 would be in terms of constant 2011 U.S. dollars:

Here, we find that although the U.S. federal minimum wage has grown by 70.6% from 1994's $4.25 per hour to 2011's $7.25 per hour, in inflation-adjusted dollars, it has really only increased by 12.4%, from $6.45 constant 2011 U.S. dollars in 1994 to $7.25 per hour today.

Meanwhile, President Obama's proposed increase to $9.00 per hour would represent a raw increase of 24.1%, which works out to be a 21.7% increase (to $8.82 in constant 2011 U.S. dollars) after we adjust for inflation.

In our next chart, we answer a hypothetical question by dividing the aggregate income of all 15-24 year olds in the U.S. by dividing it by the minimum wage for each year: how many equivalent hours of work would it take to earn all the aggregate income earned by all individuals Age 15-24 in each year if it was all earned at the federal minimum wage that applied in each year?

This is where that remarkable result we illustrated earlier comes into play. Because the employers of 15 to 24 year old Americans don't have any more money available in real terms to pay their workers than they did in 1994, an increase in the minimum wage forces a reduction in the number of hours in which those Age 15-24 can be employed below their 1994 level.

In the chart above, we see that the 12.4% real increase in the minimum wage from 1994 to 2011 results in an 11.2% reduction in the number of hours that U.S. employers had available for teens and young adults to work. If President Obama's 21.7% real increase in the minimum wage were to go into effect today, the fixed amount of money that the employers of teens and young adults have available would reduce the number of equivalent minimum wage hours by 17.8% below the 2011 figure.

We should also note that the number of hours shown for each year in our chart above would represent the hypothetical maximum number of hours that U.S. employers would have available for all teens and young adults to work. Teens and young adults who earn more than the minimum wage would reduce the amount of money and hours available for those who earn less than they do, forcing many out of the job market altogether. The more who make more than the minimum wage, the more who will be locked out from even being able to be employed.

So how did that 12.4% real increase in the federal minimum wage play out in real life for 15-24 year olds in the United States? Our final chart shows the changes in the number of teens and young adults both with and without income in 1994 and 2011:

Here, we should first note that the population of 15-24 year olds in the United States increased by 6,823,000, from 36,294,000 in 1994 to 43,117,000 in 2011.

With that noted, we find that there are some 1,012,000 fewer teens and young adults with incomes in 2011 than there were in 1994, as the number of income earning teens and young adults fell from 27,026,000 to 26,014,000. Meanwhile, the number of teens and young adults without incomes skyrocketed by 7,835,000, rising from 9,268,000 in 1994 to 17,103,000 in 2011.

That 84.5% increase in the number of teens and young adults without any kind of measurable income in 2011 should not be surprising, given that over 89% of teens and young adults who do have incomes earned more than the federal minimum wage in this year - that high figure means that most of the impact will be felt by teens who are blocked by the minimum wage from entering the job market. In this case, that includes the entire increase in the teen population from 1994 to 2011. Remember our point about the "more who make more" than the minimum wage above!

In the absence of real economic growth boosting the revenues for the employers of teens and young adults, which would be what is needed to effectively counteract this effect, we can expect the same scenario to play out if President Obama's proposed minimum wage ever goes into effect.

In an upcoming post, we'll take on how much of a deadweight loss that would be imposed on the economy for just Age 15-24 year olds by implementing President Obama's poorly considered proposal. In the meantime, see the comments here for more insight on the outcomes that this proposal would really achieve.

Notes

[1] We selected 1995 because the U.S. Census Bureau only makes detailed income data for that year easily available in a digital-friendly format). We selected 2012 because it is the most recent year.

[2] The U.S. Census Bureau collects in March of each year, so its reported income figures really apply for the previous year, which is why we've indicated 1994 and 2011 in our charts.

[3] We've deliberately introduced a flaw in our analysis above (not the math, mind you!), so it conforms with how President Obama and many of his supporters see the world - we think that they should really have to explain why they are out to hurt teens and young adults so much if what they believe about income inequality is really true.

References

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].

The Minimum Wage, The Economy and Labor Force Participation

After showing how only the reduction in the U.S. labor force participation rate has resulted in a lower unemployment rate last week, a number of commenters requested that we follow up and show how the minimum wage might factor into the situation.

So we whipped up three charts to look at the period from January 2002 through July 2012 [1]. First, here's the level of the minimum wage in both the U.S. and in California [2].

In the charts we're presenting today, we're indicating the deflation phase of the Dot-Com Bubble with the green shaded vertical band on the chart, official recession periods with the red shaded vertical band, and a period of time in which the U.S. was undergoing near-deflationary levels with the blue-shaded bands. Because deflation operates oppositely to inflation, it can result in effectively increasing the minimum wage while it reigns, even though there has been no actual change in the mandated minimum wage level.

Next, we looked at the labor force participation rate for the entire working age population (Age 16+) for the United States:

This data is identical to what we previously posted showing the change in the U.S. labor force participation rate from January 2002 through July 2012. Here, we see that declines in the labor force participation rate largely coincide with recessionary or deflationary periods, however we also note that outside these economic event, increases in the minimum wage (at the federal or state level) tend to also precede declines in the labor force participation rate.

In our next chart, we focused in on the labor force participation data for U.S. teens. This segment of the U.S. work force is the most likely to reveal correlations between the timing of minimum wage increases and changes in their labor force participation rate, because roughly one of ten working teens in the U.S. earn the U.S. federal minimum wage, who in turn, make up nearly one out of four members of the U.S. minimum wage earning work force.

Judge for yourself whether a causal relationship might exist between when a minimum wage increase occurs and when declines in the labor force participation rate take place.

Notes

[1] The choice of dates is arbitrary, and in this case, chosen by the Bureau of Labor Statistics data jocks, who have the default starting and ending years for their online database for the Current Population Survey set at 2002 and 2012 respectively. If you don't like it, well, go to their site and select your own dates to get the data to make your own charts.

[2] We're showing the U.S. federal and California minimum wage levels because California's minimum was so elevated with respect to the U.S. federal minimum wage during this period, and because California is home to one out of every eight Americans. That's a pretty large segment of the population, so what California does will show up in the national level labor force participation rate data. We should also note that a number of smaller population states set their minimum wage at levels similar to those of California during this period of time, with the result being that about one out of five Americans lived and worked in states with higher minimum wage levels than the federal minimum wage. For these reasons, we believe that changes in California's minimum wage level then will work as a fairly good proxy for this portion of the U.S. population.

Updated: Jobs Above and Below the Minimum Wage Line

With the release of the BLS' report for 2011 on the Characteristic of Minimum Wage Earners, we can now update our pioneering chart illustrating how the federal minimum wage-earning composition of the U.S. workforce has changed in each year since 2006.

Here, we start with the year 2006 because that is the last full year, before 2010, in which the U.S. federal minimum wage was set at a constant level throughout the entire calendar year. Using our very accurate model of the income distribution of that year, we then measure the difference between the number of jobs recorded at each year's minimum wage level to the same number recorded at the same reference wage levels in 2006, taking into account the amount of time at which a given minimum wage level applied during each year.

The result is the candlestick-style chart below, where the horizontal axis defines the break between those earning the time-weighted federal minimum wage or less for the indicated years, which are shown below that "zero" line. The purple vertical bars show the full number of people recorded as being employed during the year, while any black ends show where reductions in the U.S. workforce have occurred since 2006. The values shown on the chart indicate the size of the change of the "above" or "below" minimum wage workforce for the indicated years with respect to the starting year of 2006.

Reading the chart from left to right, we see that 2007 saw some 402,850 jobs lost from the U.S. economy, which were all below the time-weighted minimum wage level for that year, as the otherwise growing economy of that year added 2,033,767 jobs above the minimum wage line. The U.S. federal minimum wage was increased in July 2007 from $5.15 per hour to $5.85 per hour.

In 2008, the economy added some 46,482 jobs above the time-weighted minimum wage line for that year, raising the total difference from 2006's job level above the federal minimum wage level to 2,080,249. Meanwhile, the U.S. economy shed an additional 725,982 jobs paying the federal minimum wage or less, as the full difference with respect to 2006 for jobs paying the federal minimum wage or less fell to 1,128,832.

The federal minimum wage was increased in July 2008 to $6.55 per hour.

For all practical purposes, the net job losses that occurred during the first year of the recession that officially began in December 2007, as measured from the peak of the previous period of economic expansion that took place in that month, were entirely confined within the minimum wage-earning portion of the U.S. workforce.

That situation changed in 2009 with the fallout from the rapid decline of the U.S. automotive industry. Here, compared to 2008, a total of 4,919,970 jobs paying more than the federal minimum wage were lost in 2009, which brings the total number of jobs paying more than the federal minimum wage down to be 2,839,721 lower than the number of jobs paying more than the same time-weighted minimum wage levels of 2006.

Things continued to go badly for those earning the federal minimum wage or less, as another 563,613 fewer people disappeared from this portion of the U.S. workforce as compared to the previous year, bringing the total reduction with respect to the number of people being paid the same wage level or less in 2006 to 1,691,445.

We note that the recession that officially began in December 2007 officially ended in June 2009. July 2009 marks the last increase in the U.S. federal minimum wage, reaching its current level of $7.25 per hour.

2010 saw job losses continue both above and below the now steady U.S. federal minimum wage level. Compared to the previous year, an additional 274,896 people earning more than the U.S. federal minimum wage disappeared from the U.S. workforce, while another 542,938 people earning the U.S. federal minimum wage or less also disappeared from the U.S. workforce. These year over year changes bring the difference with respect to the same wage levels in 2006 to a reduction of 3,114,617 for those earning more than the federal minimum wage, and a total reduction of 2,234,383 for those earning the federal minimum wage or less in 2010.

2011 marked the first real year of improvement for those earning more than the federal minimum wage, as the number of people in this category increased by 1,335,584 over the level recorded in 2010. Compared to 2006 however, there are still 1,779,033 fewer people with jobs that pay more than $7.25 per hour today.

But the bleeding has yet to stop for those who earn the federal minimum wage or less. Here, we observe that 2011 saw 531,000 fewer people earning the federal minimum wage of $7.25 or less, lowering the number of people earning those wages to be 2,765,383 below the same level for 2006.

The average number of individuals earning the federal minimum wage or less has decreased by 551,855 per year since 2006, with the best year being 2007 when only 396,744 such jobs disappeared and the worst year being 2008, when 725,982 such jobs vanished from the U.S. economy.

The Age Demographics of Minimum Wage Earners

The BLS has released its report on the Characteristics of Minimum Wage Earners for 2011, and to mark the occasion, we've visualized the age demographic data from Table 7 of each report covering the years from 2006 through 2011 using pie charts, and then we set them in motion using Picasion's animated image generator (the "spinning wheel" effect of which turned out to be overly distracting, so we replaced it with a slide show!) Our results are presented below:

U.S. Minimum Wage Workforce by Age, 2006-2011

In the charts, we see that even though the number of minimum wage earners has more than doubled from 2006's level, from 1,692,000 in that year to 2011's 3,829,000, the relative share of each age group's representation among those earning the U.S. federal minimum wage or less is largely stable from year to year.

For example, we see that approximately half of all minimum wage earners in the United States for each year from 2006 through 2011 may be found between the ages of 16 and 24, with just under 25% in the Age 16-19 bracket and just over 25% in the Age 20-24 bracket on average. We see a similar stability in the percentage share for all the other age brackets.

The federal minimum wage was increased in stages from $5.15 in 2006 to $5.85 in July 2007, then to $6.55 in July 2008, then to $7.25 in July 2009 where it stands today, which accounts for the increase in the number of minimum wage earners in each of these years as the minimum wage hikes swept up people who were already earning higher hourly wages in each year of the minimum wage hikes.

The relative stability in each age bracket's percentage share representation among all minimum wage workers in the U.S. then is communicating quite a lot about the age distribution of income in the U.S. - younger people are the most likely to be at the bottom of the nation's income ladder.

The Poison Pill

On 23 December 2011, the Republican party majority in the U.S. House of Representatives caved in on its opposition to President Obama and the Democratic party majority in the Senate's proposal to provide a two-month long extension for the President's payroll tax cut.

Here, the percentage that individuals must pay in their taxes that support Social Security was maintained at 4.2% through the end of February 2012, after which, the rate is set to rise back up to the 6.2% level it had been for the two decades from 1990 through 2010.

With President Obama's State of the Union address scheduled for tonight, there is little doubt that he will seek to extend the payroll tax cut through the end of the year, which will have to be supported by increased deficit spending in order to pay out benefits to today's SOcial Security recipients, which will increase the national debt as the program is set to continue running more deeply in the red.

Given the political damage from the collapse of the Republican's political strategy in December 2011, it seems unlikely that the party's senior leaders will seek to oppose the President's payroll tax cut again. They might be able to get some traction by letting the payroll tax cut expire by cutting federal income (and withholding tax) rates, however that would depend upon the President and Senate Democrats to go along, which seems even more unlikely given their late-year political victory.

If that outcome is not really possible then, perhaps the best strategy that congressional Republicans might follow would be to allow the President and Senate Democrats to have another small victory, but one that would cost them dearly in the November 2012 elections.

It's often said that "people vote their pocketbooks", meaning that economic conditions have a lot to do with the choices people make at the ballot box. For example, if conditions are stable, good, or improving, then it would be more likely that incumbent politicians, such as the President and many Senate Democrats, will hold onto the offices that they hold so dear.

But if conditions are bad or worsening, then they would be more likely to be voted out of office.

The trick then would be to give them the bill they want, but with one key addition - a "poison pill" that they cannot resist ingesting, one that seems like a good idea to them, but that would have the effect of sealing their fate through the damage it might cause to the economy.

It would also have to be something that would have a relatively small effect, because if it works, you'd only want a relatively small mess to have to clean up pretty easily.

To that end, we would suggest raising the federal minimum wage in the U.S. to $8.00 per hour, with the increase taking effect in April 2012.

Even with a growing economy, the amount of that increase would enough to decrease the number of jobs that might otherwise exist in the U.S. economy by roughly 300,000. Since it takes roughly six months for the full effect of a change in the minimum wage to take hold in the economy, that would put the greatest job loss in October 2012, just ahead of the 6 November 2012 election.

Better still, the action would not leave any real political fingerprints, as the reduction in jobs would mostly be in the form of jobs not being created, where the most affected would be teens and young adults, who can have their unemployment more easily concealed since their attendance at school would keep them from being counted as being part of the U.S. workforce.

It's an intriguing idea. And it's very unlikely that the President and Senate Democrats would even consider resisting it, given their beliefs! We wonder if any U.S. politicians have ever tried doing it before....

Can Increasing the Minimum Wage Boost GDP?

Does increasing the minimum wage increase GDP?

Bloggingstocks' Joseph Lazaro outlined the theory that it might back on 1 August 2009, shortly after the U.S. federal minimum wage reached its current level of $7.25 per hour (emphasis ours):

... the U.S. Federal Reserve will be monitoring prices and costs to see if the higher minimum wage is creating inflation havoc at a time when U.S. businesses least need another concern to deal with. Businesses have enough to worry about; and some are struggling just to maintain operations for another quarter or two -- the recession has been that damaging.

But the Fed will also be looking for signs of another side-effect, and this one is a positive one: a GDP boost. That's because millions of workers are going to get a raise that they otherwise would not have gotten, and that will increase their purchasing power.

The significance? Some of those increased-pay workers will choose to spend -- perhaps buying a washer or drier, making a down payment on a used car, or paying down a debt. It's quite possible -- although in these "frugal consumer" economic times no one is certain- - that the wage hike will increase U.S. GDP, serving as a small engine of growth as the U.S. economy inches back toward health.

It's an intriguing possibility isn't it? But has it worked out that way?

One way we can find out if boosting the federal minimum wage has boosted GDP is by examining the economic fortunes of the people most likely to be earning minimum wages in the United States: teenagers and young adults!

Together, individuals between the ages of 15 and 24 have consistently made up approximately one half of all minimum wage earners, so we should be able to use the personal income data the U.S. Census has collected and published for this age group for each year since 1994.

First, let's consider the population of 15-24 year olds in the United States, and the number of those individuals counted as having income from 1994 through 2010.

Over this time, the federal minimum wage has increased from $4.25 per hour in 1994, to $4.75 in 1996 and then 50 $5.15 per hour in 1997, where it held level until 2007. Beginning in 2007, it was increased by 70 cents per hour once a year up until it reached its current level of $7.25 per hour in 2009.

What we see however is that the number of teens and young adults with incomes has fallen over time. Our next chart shows the percentage of Americans between the ages of 15 and 24 who were counted as having income in the U.S. Census' Current Population Survey for each year from 1994 through 2010.

In this chart, we find that the percentage of teens and young adults who had incomes peaked in 1995, with 75.3% of the entire Age 15-24 population counted as having earned income in that year, which has since fallen to 59.9% as of 2010.

So far, both these charts indicate that the number of teens and young adults in the U.S. workforce has fallen from 1995 through 2010 - these charts don't tell us anything about how teens and young adults might have benefited from higher pay obtained through a rising minimum wage over time!

For that, we'll dig deeper in the U.S. Census' data and extract the data for the aggregate amount of income earned by individuals Age 15-24. Since one way of measuring the U.S. Gross Domestic Product is to add up all the income earned by people in the United States, we can use the Census' estimate of the aggregate income earned by U.S. teens and young adults to represent their contribution to the U.S.' GDP.

The easiest way to do that is to compare the amount of income earned by all U.S. teens and young adults in 1995, when the percent share of teens in the U.S. workforce peaked with the total amount of income earned by all U.S. teens and young adults in 2010, the most recent year for which we have data.

Coincidentally, selecting these particular years for comparision works especially well for our purposes, since it spans the increases in the U.S. minimum wage from $4.25 per hour to $7.25 per hour, with 1995 being one year before the first minimum wage increase in our period of interest occurred, and 2010 being one year after the most recent increase in the U.S. minimum wage took place.

We'll also adjust the numbers to account for the effect of inflation, using an animated chart to show the results.

What we find in examining this chart is that for the 15 year span from 1995 to 2010, the nominal aggregate income of U.S. teens and young adults increased by 14.75%, from roughly $302.9 billion to $347.5 billion.

But most remarkably, in terms of constant 2010 U.S. dollars, the aggregate income of U.S. teens and young adults fell by 0.56% from $349.5 billion in 1995 to $347.5 billion in 2010. For all practical purposes, despite a 70.6% increase in the nominal value of the U.S. federal minimum wage from $4.25 to $7.25 (a 21.8% increase in real terms), the total amount of income collectively earned by the predominant earners of the U.S. minimum wage in the United States is unchanged.

Let's take a step backwards and consider the nominal income distribution of teens and young adults in both 1995 and 2010 in nominal terms.

Our next animated chart shows how many thousands of Age 15-24 individuals the U.S. Census counted within each $2,500 increment of total money income in both 1995 and 2010.

Here, we find that the distribution of income has shifted primarily at the lower end of the income spectrum. Our final chart quantifies the changes for each of the U.S. Census' measured income increments.

Here, we note that an individual earning the U.S. federal minimum wage of $7.25 per hour in 2010 who works full time (2,080 hours per year = 8 hours a day, 5 days per week, 52 weeks per year), would earn $15,080 in a year. That puts all the income affected by increases in the U.S. federal minimum wage over time below this level.

What we find is that this income range at the lowest end of the income spectrum for Americans between the ages of 15 and 24 is the only income range where there have been reductions in the number of individuals with incomes between 1995 and 2010.

We also find that the number of individuals with incomes below $15,000 has fallen by 5,045,000 from 1995 to 2010. Meanwhile, we find that the number of Age 15-24 individuals with incomes over $15,000, which would be considered to be largely unaffected by increases in the U.S. federal minimum wage over time, has increased by 3,105,000.

Overall, there are 1,940,000 fewer individuals between the ages of 15 and 24 with incomes in 2010 than in 1995.

Consequently, we find that increasing the federal minimum wage has failed to increase GDP over time. Worse, we find that increasing the federal minimum wage has actually increased income inequality within the Age 15-24 population from 1995 through 2010, as the same aggregate income, when adjusted for inflation, is effectively being spread among nearly two million fewer people.

Returning to Joseph Lazzaro's thoughts on the topic:

... if the Fed and other organizations can verify that the minimum wage increase has boosted GDP without a loss of jobs, or inflation, Congress may to consider another decision in the quarters ahead: a decision to raise the federal minimum wage again, this time to $8.25 per hour.

In our view, the only reason the U.S. Congress would choose to increase the federal minimum wage again would be to ensure the onset of a new recession.

This concludes our annual anniversary post, where we celebrate the biggest ideas we've developed during the past year! This year's anniversary post was a bit unique in that it combines two of the areas in which we've made a mark (or left one!): the real impact of minimum wages on the U.S. teen population and the real nature of income inequality in the United States.

As for the biggest ideas we've developed in previous years, here's the list:

• 2005: A Year's Worth of Tools - we celebrated our first anniversary by listing all the tools we created in our first year. There were just 48 back then. Today, there are over 259....


• 2006: The S&P 500 At Your Fingertips - the most popular tool we've ever created, allowing users to calculate the rate of return for investments in the S&P 500, both with and without the effects of inflation, and with and without the reinvestment of dividends, between any two months since January 1871.


• 2007: The Sun, In the Center - we identify the primary driver of stock prices and describe a whole new way to visualize where they're going (especially in periods of order!)


• 2008: Acceleration, Amplification and Shifting Time - we apply elements of chaos theory to describe and predict how stock prices will change, even in periods of disorder.


• 2009: The Trigger Point for Taxes - we work out both when, and by how much, U.S. politicians are likely to change the top U.S. income tax rate.


• 2010: The Zero Deficit Line - a whole new way to find out how much federal government spending Americans can really afford!

Thank you for joining us for our anniversary! We appreciate that there are a lot of ways you can choose to spend your time, and we greatly appreciate your willingness to share so much of it with us over the past year.