How the Minimum Wage Increase Really Affects Job Numbers

by Fred Siegmund

The minimum wage went up to $7.25 an hour on July 24th, a 10.7% increase over last year, as the last of a three-year planned increase passed by Congress. Since inflation is reported at 3.8% for the year the real wage — actual buying power of the minimum wage — went up for 2009.

The Bureau of Labor Statistics publishes wage ranges by occupation as part of its occupational employment survey and, although the median wage is often quoted in the popular press, there are wage ranges published that include the 10th, 25th, 75th and 90th percentile wages by occupation.

For example, the 2008 data shows there are 3.5 million people nationwide employed as cashiers, with a 10th percentile wage of $6.88. That means that 10%, or 350,000 jobs, have wages equal to or less than $6.88 an hour.

The 2008 data shows cashier and 30 other occupations with 18 million jobs that have 10th percentile wages of $7.25 or less, which means 1.8 million of the total can expect a boost in pay.

Higher-Wage Jobs Affected by the Minimum Wage

Business tends to oppose any increase in the minimum wage and economists predict in sinister tones that higher minimum wages lead to falling employment, hurting those who are supposed to be helped.

However, the tendency to use less labor at higher wages is universal and not confined to just minimum wage jobs.

For example, the Bureau of Labor Statistics reports managerial jobs in decline with a drop from just over 8 million to barely 6 million in 2008. Engineering managers are down by nearly 70 thousand as median wages went steadily up reaching $115,000 in 2008.

Economizing on highly paid engineering managers puts engineers in surplus as long as we expect former engineering managers to be looking for engineering work in related occupations.

Most engineering specialties like civil engineering and mechanical engineering have median wages in the mid $70’s. Engineering technician jobs have median wages in the $40’s.

Civil and mechanical engineering jobs are up with some of the unemployed engineering managers adding to the supply of labor, but we can’t be sure who got the engineering jobs. If it is former engineering managers, it will certainly mean a pay cut for them.

It could be an engineer who was working as a lower paid engineering technician. If that is the case it will mean a pay raise for them. It could also be a college graduate in engineering who was working in a minimum wage job. If that is the case it will mean a pay raise for them.

The Job Markets Adjust to a Higher Minimum Wage

Economists tend to ignore what is happening in high wage job markets when they predict changes from a higher minimum wage.

A higher minimum wage can eliminate jobs, but that does not relegate the people who had them to endless unemployment, or even to lower wages. That is because changes in job markets create surplus labor in many occupations in other wage ranges, high and low.

This July 24th, Secretary of Labor Hilda L. Solis was quoted as saying, “This administration is committed to improving the lives of working families across the nation, and the increase in the minimum wage is another important step in the right direction.”

Politicians usually exaggerate their good deeds. It is not enough increase to be the important step she says, but it is in the right direction.

About the author: Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at

Previous post:

Next post: