Overstated Claims About the Upward Mobility of Minimum-wage Workers

One estimate cited by opponents of a minimum wage increase is that the wages of 63% of minimum wage earners increase after one year. This estimate is rounded up to “two thirds” by Kevin Shivers of the National Federation of Independent Business. * This claim appears to come from a widely cited 1992 article by Ralph Smith and Bruce Vavrichek, which used U.S. data from the mid-1980s.**

Smith and Vavrichek made two methodological choices that tend to increase the 63% figure.

• First, Smith and Vavrichek focus on workers earning right at the minimum wage. This means that an increase of as little as a penny after one year moves workers into the group that experiences an “increase.” Moreover, while the average increase received by minimum wage workers was nearly 20 percent, with a $3.35 minimum wage in the mid-1980s, 20 percent amounts to only 67 cents.

• Second, the authors do not adjust for inflation. Therefore workers who experience an increase in hourly wages that does not compensate for inflation still fall into the group that experiences a wage increase. Adding the 16 percent of workers who received increases from $3.35 to $3.50 to the 37 percent who received no increase, Smith and Vavricheck themselves note the “sobering” finding that “over half of the minimum wage workers employed a year later received an hourly wage rate that either did not keep pace with inflation or just barely did so.”

In sum, Smith and Vavrichek’s research does not support the claim that nearly two-thirds of minimum wage workers experience a meaningful or inflation-adjusted increase in wages after one year.

A final reason not to rely at this juncture on the Smith and Vavrichek estimate is that these authors rely on old data. More recent data from the same underlying source (the Panel Study of Income Dynamics), spanning 1992 to 2003, has been examined recently by Heather Boushey (see Box 2).

* Jodi Paladino, a small-business owner and chairman of the Pennsylvania Leadership Council of the National Federation of Independent Business (NFIB), wrote recently, “For most small business owners, the minimum wage is a starting or training wage. These jobs allow Pennsylvanians to establish work records opening doors to better-paying jobs. Sixty-three percent of minimum wage earners see their wages increase after one year.” (See Jodi Paladino, “Pay now or later,” The Patriot News, September 18, 2005.) Kevin Shivers, also of the NFIB, wrote, “Most small-business owners use the minimum wage as a starting or training wage. These jobs allow Pennsylvanians to establish work records, opening doors to better-paying jobs. That’s why two-thirds of all minimum wage earners see their wages increase after one year.” (See Kevin Shivers, “Raising the minimum wage hurts,” Meadville Tribune, December 30, 2005)

** Ralph E. Smith and Bruce Vavrichek, “The Wage Mobility of Minimum Wage Workers,” Industrial and Labor Relations Review, October 1992, pp. 82-88.

This document is an on-line summary of a Keystone Research Center report. The entire report is available for download as a PDF file at the KRC Web site www.keystoneresearch.org © 2001 Keystone Research Center