On This Labor Day, the Glass Is Half-Full

(The original ran under a different title.)

What proportion of the U.S. labor force earns the minimum wage or less?

It’s a good question for Labor Day and one measure of how you think the U.S. economy treats people. Some people see the glass as half-empty. Others see it as half-full. And the minimum wage question is one way to find out which side of the divide you’re on.

I’ve surveyed lots of different people on this question: law professors, Congressional staffers, law students, journalists, undergraduates. The answers I get back tend to be pretty similar. The average answer is around 20%. And a lot of educated people think it’s 40% or higher. That’s not half-empty, That’s barely damp.

Get your guess ready, because I’m about to tell you the answer. Most but not all employers are required to pay the minimum of $5.15 per hour. The Bureau of Labor Statistics (BLS) collects data on the 72 million Americans who are paid by the hour. They make up 60% of the labor force. In 2001, a recession year, the BLS estimates that three percent of that hourly work force earns the minimum wage or less. Three percent. You can make the number a little higher or a little lower depending on how you slice it. You can look at just full-time workers and the number falls to below two percent. You can look at just women and the number is four percent. But no matter how you slice it, most workers are much better off than most people think. In fact, half of the workers paid by the hour make more than $10 an hour, almost double the minimum.

Another good Labor Day question is why most workers make so much more than the legal minimum. Don’t businesses try to pay their workers as little as possible? Why would they pay more than the law requires?

You might think that labor unions keep wages high. It’s a tough claim to prove—less than 10% of the private work force is unionized. The same phenomenon appears if we look back in time. The proportion of the US work force that is unionized has been steadily falling for the last 40 years, yet America’s standard of living is much higher than it was in 1960, even after correcting for inflation. How has that happened? Who’s protecting the American worker? Why are wages and salaries in America so high?

Ironically, it’s the profit motive, the so-called greed of corporations and business owners that protects the workers. That motive can lead to hardship when a company closes down a plant or lays off workers. But it’s the same force that keeps wages high. Companies have to compete with each other to attract and keep workers. That means high salaries and benefits. Otherwise how do you explain the thousands of companies that pay well above the minimum? Are those the companies run by the nice guys?

I don’t think most CEOs or business owners are any nicer or meaner than the rest of us. But to succeed in business you have to meet or surpass the competition. That imperative of the marketplace drives companies to improve their products and keeps prices down. And most of the time it protects workers. A company can’t thrive if it has a reputation for being a lousy place to work.

So even though we have a minimum wage and labor unions, they don’t have much to do with the high level of wages of the United States. It’s hard to accept. You can’t see the competition between companies that keeps wages up. And the system isn’t perfect. Workers get laid off and left behind. Sometimes a company is run by a crook or a loser who treats his workers poorly. And our education system fails too many of our children and doesn’t give them the skills they need to succeed in a competitive world.

That’s why on this Labor Day in 2002, the glass is only half-full. Or maybe three-quarters full. But while you’re savoring the holiday today, hoist a glass to the unseen force of competition that helps produce prosperity. And while there is still work to be done to make life better, there is much to be thankful for.

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