The Economist: Texas and the minimum wage
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A recent report from the Bureau of Labor Statistics indicates that Texas has more workers earning the minimum wage (or less) than any other state. While this is one list we don’t necessarily want to top, it's important to look at that piece of information in context.
As of 2012, Texas had just over 6 million workers paid by the hour. Of that total, 452,000 were paid at or below the Federal minimum wage (282,000 at and 170,000 below). The next highest total was 224,000 in New York. One reason for these big numbers is the sheer size of our workforce--about 12.7 million people (counting only civilians). California, with about 18.6 million, is the only state that is larger. New York is third with 9.6 million, then Florida with 9.4 million, and the sizes drop off quickly after that. If you look at it in percentage terms, Texas is still high with 7.5% of hourly workers earning at or below the minimum wage, but there are several other states with relatively healthy job markets that are not too far off.
Nationally, the proportion of the workforce that is working at or below the minimum wage has been falling for decades. In the early 1980s, 15.1% of US workers who were paid hourly rates were paid at or below the minimum wage in place at that time, compared to 4.7% last year. In Texas, from 2002 to 2006, the percentage of hourly workers in Texas earning at or below the minimum wage was consistently around 4% or less, falling as low as 3% in 2006. However, a series of increases in the Federal minimum wage that went into effect in the summers of 2007 through 2009 caused more Texans to be counted as at/below the minimum, pushing the percentage to a high of 9.5% in 2010. The proportion has fallen significantly over the past few years.
In comparing Texas to other areas, it's important to consider the overall state of the job market. For example, California's unemployment rate remains significantly higher (9.4% in March) than the rate here (6.4%). Minimum wage workers are often young, including many teenagers. They also tend to be part-time employees. During an economic downturn, such positions are often the first to be eliminated, and minimum-wage workers comprise a significant component of unemployment.
It's also important to consider the relative cost of living and housing. The cost of living in Texas is significantly lower than many of the areas which have low proportions of minimum-wage workers. An individual would have to earn more than $25,000 in San Jose, for example, to have the equivalent of a $15,000 per year job in Houston. The cost of living in several Texas cities is among the lowest in the nation, and minimum-wage workers' earnings go much farther here.
Another factor is that many states (19 as of January 2013) including California and Florida, have established minimum-wage rates higher than the Federal level. It’s no surprise that these states have fewer workers at the Federal minimum wage than those states where the rates are equal.
Texas’ relative youth also works against us in comparisons. Young people starting out at minimum-wage jobs typically do not continue to make such wages for their entire working careers. As of 2012, 21.1% of US hourly workers aged 16-19 made at or below the minimum wage, compared to just 8.7% of those aged 20-24 and only 2.9 % of the hourly workers aged 25 and above. The proportion falls through working age groups, from 12.1% for those 16-24 to 1.8% for those 55-64. One crucial aspect of moving up the pay scale is, of course, education and training.
While we might all like to see improvement in earnings and job quality, the simple fact is that Texas is one of the healthiest job markets in the nation. Overall, the median hourly earnings of workers in Texas for 2012 was $12.00, compared to $12.80 for the US as a whole. Given cost-of-living differences, that’s not bad. We've been adding jobs in all income categories, and part-time and younger workers are having an easier time finding work here than in most areas. That is not to say that we don’t have a problem; it is just important to have a proper perspective.
Over time, the proportion of workers in the state who are earning at or below minimum wage is likely to continue to trend downward. The better we deal with education issues, the faster and farther it will fall.
Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.