Research Summaries

25d. How much does . . . USUALLY
eam per week at this job BEFORE de-
ductions? Include any overtime pay,
commissions, or tips usually received.

3 See The Fair Labor Standards Act of 1938,
as Amended.

4 This technique for imputing an hourly earn-
ings figure from the cps microdata tapes has been
used before. See, for example, Thomas J.
Kniesner, “The Low-Wage Workers: Who Are
They?” in Simon Rottenberg, ed., The Econom-
ics of Legal Minimum Wages (Washington,
American Enterprise Institute for Public Policy
Research, 1981), pp. 459-81

5 The apparent tendency for some respondents
to understate usual weekly earings may occur
because “take-home pay,” rather than gross
weekly earnings, is reported. In addition, there
is some concem that tips, commissions, and
other pecuniary nonwage compensation may be
underreported in the cps. While it is difficult to
document this effect for the weekly earnings data
collected monthly in the cps, there is evidence of
such underreporting of nonwage income for the
annual income data collected in the cPs’s March
income supplement. For further information on
the underreporting of weekly earnings data in the
monthly cPs, see Larry Carstensen and Henry
Woltman, “Comparing earnings data from the

Ps and employers records,” Proceedings of the
Social Statistics Section, 1979 (Washington,
American Statistical Association), pp. 168-73

For information on the underreporting of yearly
income data in the March income supplement,
see the appendix entitled “Underreporting of In-
come,” in Money Income and Poverty Status in
the United States: 1988, Current Population Re-
ports , Series P60, No. 166 (Bureau of the Cen-
sus, 1989).

© Although nonhourly paid workers can in-
clude workers paid daily rates, commissions, or
by piecework, itis likely that the vast majority of
these workers are salaried.

A note on communications

The Monthly Labor Review welcomes communications that supplement,
challenge, or expand on research published in its pages. To be considered
for publication, communications should be factual and analytical, not
polemical in tone. Communications should be addressed to the Editor-in-
Chief, Monthly Labor Review, Bureau of Labor Statistics, U.S. Depart-
ment of Labor, Washington, pc 20212.

74 Monthly Labor Review January 1990


used to estimate hourly earnings. As
shown in table 2, the likelihood of
earning low wages remains greatest for
teenagers and young adults, women,
and part-time workers, regardless of
which hourly earnings measure is
used.

How much do minimum wage workers
make? As discussed above, there is
evidence that many workers whose
hourly rate is equal to or below the
minimum wage do receive other com-
pensation, which, in effect, raises their
hourly earnings above the stated wage
level. In fact, as shown below, about
two-fifths of all hourly paid workers
reporting hourly wages at or below the
minimum in 1988 earned more than
$3.35 per hour on the basis of their
weekly earings and hours worked,
with about one-fifth making $4.25 or
more an hour, and roughly | in 20
making $8 or more:

Total Percent
(thousands) of total
Reported hourly
wage equal to or
less than $3.35 3,927 100.0
Usual hourly
earnings
Less than $3.35 1,725 43.9
Exactly $3.35 673 17.1
More than $3.35 .. 1,529 38.9
$4.25 and above 77 18.3
$4.55 and above . 633 16.1
$8.00 and above 212 5.4

The amount of the supplemental
compensation varies according to a
number of factors, the most important
of which is a worker's occupation. For
example, among food service workers
such as waiters and waitresses, who
commonly receive tips, about half of
those reporting hourly wages at or
below the minimum had total usual
hourly earnings that exceeded the min-
imum wage. About a third of these
workers had usual hourly earnings of
$4.25 or more. In sales occupations,
in which commissions are the most
prevalent form of supplemental com-
pensation, fewer workers received pay
complements. Nevertheless, about a
third of salesworkers reporting hourly
earnings at or below the minimum
were found to earn more than $3.35 an
hour based on their weekly earnings,

although fewer than 1 in 10 received
$4.25 an hour or higher.

It is interesting to note that a larger
proportion of the workers who reported
hourly wages below the minimum of
$3.35 actually had higher usual hourly
earnings than was the case for those
who made exactly the minimum. For
example, about a third of all hourly
paid workers who reported wages
below the minimum in 1988 had usual
hourly earnings of $4.25 or above,
compared with roughly 1 out of 10
workers who reported the minimum.
This may largely be explained by the
treatment of tipped employees under
the Fair Labor Standards Act. Under
the provisions of the 1977 amendments
to the law, employers may count tips
received by their employees as part of
wages (for all employees who regu-
larly receive monthly tips in excess of
$30), so long as this wage credit does
not exceed 40 percent of the minimum.
Thus, those employers who can use the
maximum tip credit allowance need
pay their employees a wage of only 60
percent of the minimum, or $2.01.
Some workers, however, may receive
substantial tips, thereby raising their
hourly earnings significantly above
their reported hourly wage. This is
probably why about half of all food
service workers who reported hourly
rates below the minimum turned out to
be earning $4.25 an hour or more on
the basis of their weekly earnings and
hours worked. However, among the
food service workers who reported
hourly earnings of exactly $3.35, the
proportion who earned more was con-
siderably smaller.

ESTIMATES OF THE NUMBER of workers
with hourly earnings at or below the
prevailing Federal minimum wage can
vary depending on the types of pay in-
cluded and the method of computation.
In 1988, about two-fifths of the 3.9
million hourly paid workers who re-
ported hourly wages of $3.35 or less
appeared to have had supplemental
compensation which raised their usual
hourly earnings above $3.35. Among
all hourly paid workers, the number
with computed hourly earnings at or
below $3.35 was some 600,000 fewer
than the number whose hourly rate
alone was at this level. (The net result

takes into account those workers whose
reported hourly earnings were above
$3.35 but whose computed earings fell
below that amount.) However, when the
usual hourly earnings of nonhourly paid
workers are computed, some 1.5 million
additional workers appeared to have had
eamings that were $3.35 or less. In ei-
ther case, the proportion of workers
with low wages was less than the usually
published estimate, which is based on
the wages of persons paid on an hourly
basis.

The usual hourly earnings estimates
discussed in this report allow general
inferences to be made regarding the to-
tal hourly earnings of workers. How-
ever, the sensitivity of the estimates to
the rounding of both weekly hours and
weekly earnings on the part of re-
spondents severely limits their useful-
ness as a reliable measure of either the
true hourly earnings of workers or of
the actual number of workers with
earnings at or below any particular
level. _

Footnotes

1 The Federal minimum wage (currently $3.35
an hour) has been at this level since January
1981, when the last scheduled increase required
by the 1977 amendments to the Fair Labor
Standards Act of 1938 (FLSA) went into effect
Recent legislation, however, raises the min-
imum wage to $3.80 in April 1990, and
$4.25 in April 1991. It should be noted that the
presence of a sizable group of workers receiving
wages less than the minimum does not necessar-
ily indicate widespread violation of the FLSA, as
there are numerous exemptions to its minimum
wage provisions. For further information, see
The Fair Labor Standards Act of 1938, as
Amended, WH Publication 1318, November
1986 (U.S. Department of Labor, Employment
Standards Administration).

2 The Current Population Survey is a monthly
survey of about 60,000 households nationwide
conducted for BLs by the Bureau of the Census
primarily to obtain data on the labor force status
of individuals. The survey also includes four
questions which gather information on the usual
Jength of the workweek and the hourly and
weekly eamings of employed workers. Re-
sponses to these questions are used to calculate
the estimates of usual hourly earings presented
in this report. These questions are asked of one
quarter of the sample households each month
‘The questions are:

25a. How many hours per week does
USUALLY work at this job?

25b. Is . . . paid by the hour on this job?
25c. How much does . . . earn per hour?

Monthly Labor Review January 1990 73


Research
summaries

—
]S=- =

Estimating the number
of minimum wage workers

Steven E. Haugen and Earl F. Mellor

Interest in the number and characteris-
tics of minimum wage workers has in-
tensified in recent years. For 1988, the
Bureau of Labor Statistics, using data
from the Current Population Survey
(cps), has estimated that 3.9 million
workers paid hourly rates earned the
prevailing Federal minimum wage of
$3.35 or less; of those, 2.6 million
earned exactly the minimum and 1.3
million earned less than $3.35.' All
told, minimum wage workers (also re-
ferred to as “low-wage workers”) have
been estimated to account for 6.5 per-
cent of all workers who were paid by
the hour.

It is recognized that these estimates
do not encompass all low-wage work-
ers. For instance, because salaried and
other workers not paid by the hour
(who account for two-fifths of all wage
and salary workers) are excluded from
the universe used for the published es-
timate of minimum wage workers, the
actual number at or below the mini-
mum is undoubtedly understated. As
reasoned, a number of these nonhourly
paid workers may have earnings
which, when translated into hourly
rates, fall at or below the minimum
wage level. Such low earnings may re-
sult from relatively low salaries, or
very high weekly hours, or some com-
bination of the two conditions.

Conversely, it is also recognized
that, because the hourly earnings re-
ported in the cps do not include other
types of remuneration, such as tips and

Steven E. Haugen and Earl F. Mellor are
economists in the Office of Employment and
Unemployment Statistics, Bureau of Labor
Statistics.

70 Monthly Labor Review January 1990

commissions, they may often under-
state the true hourly earnings of some
workers. This implies that the pub-
lished count of low-wage workers may
be too high.

This report examines how the num-
ber of workers with earnings at or
below the Federal minimum wage
varies, depending on how the hourly
earnings measure is computed. Using
data from the cps, we estimate the ex-
tent to which supplemental forms of
remuneration, such as tips and com-
missions, increase the hourly earnings
of hourly paid workers who report that
they earn the minimum wage or less.”
This allows us to estimate the number
of hourly workers who have low earn-
ings when all such compensation is in-
cluded. We also estimate the number
of workers not paid hourly rates
(mostly salaried) who have earnings
that, when viewed on an hourly basis,
are also at or below the minimum wage
level. We find that alternative esti-
mates of the number of low-wage
workers based on these measures do
differ somewhat from the published
figures. However, as described below,
the inherent imprecision of these esti-
mates limits their use as substitutes for
the hourly wage series.

It is important to note that while this
study provides estimates of the number
of workers with reported (as well as
computed) hourly earnings of $3.35 or
less, such workers may or may not ac-
tually be subject to the minimum wage
provisions of the Fair Labor Standards
Act.> The Federal law contains numer-
ous exemptions from the minimum
wage standard. First, some types of
businesses are not covered by the law.
For example, certain small retail or
service establishments (based on an-
nual sales) are exempt. Additionally,
some workers, such as those in bona
fide executive, administrative, and
professional occupations, are excluded
from the minimum wage provisions of

the act through specific exemptions.
Much of the information needed to de-
termine the number of workers who
must, by law, be paid the minimum
cannot readily be obtained from house-
hold surveys such as the cps. For ex-
ample, few household respondents
would know the annual sales volume
of their employer. This type of infor-
mation can only be reliably obtained
from employers.

Profile of low-wage workers

Before discussing different techniques
that can be used to estimate the total
number of minimum wage workers,
salient demographic characteristics of
those who are paid hourly rates should
be examined. As shown in table 1:

e The typical minimum wage worker
is young, female, and works part time.
Of the 3.9 million hourly paid workers
who were reported as receiving the
minimum wage or less in 1988, 36 per-
cent were teenagers and an additional
22 percent were young adults ages 20
to 24. Sixty-five percent of low-wage
workers were women. Two-thirds of
those reporting hourly wages of $3.35
or less usually worked part time.

© Six percent of all minimum wage
workers were husbands. An additional
8 percent were persons who main-
tained their own families without a
spouse present (mostly women).
Wives made up 19 percent of the total,
and the balance consisted largely of
young, unmarried household mem-
bers.

¢ Whites, blacks, and Hispanics were
divided among the minimum wage
population in about the same propor-
tions as among all workers paid hourly
rates.

Although teenage workers were the
most likely to be paid $3.35 or less,
even for them, only 23 percent re-
ported earnings at or below this num-
ber. The incidence declined with age to


Table 1. Employed wage and salary workers paid hourly rates with reported hourly earnings at or
below the prevailing minimum wage, by selected characteristics, 1988 annual averages
‘Number of workers ‘istribution Percent of all workers:
(In thousands) eroant cetrbat pald hourly rates
Charecterietic Total $3.35 oF less Total $3.35 oF fess $3.35 or less
pald Less | paid Less Less
hourly | total | $3.35 | than | hourly | total | $3.95 | than | Total | $3.35 | than
Lisead $3.35 | rates $3.35 $3.35
Total, 16 years and over . 2,608 | 1,319 | 100.0 | 100.0 100.0 100.0 65 43 22
16 to 24 years 1,612 669 25.9 58.1 618 50.7 145 10.2 42
16 to 19 years 1,036 362 10.4 36.1 397 29.0 | 23.1 16.9 62
20 to 24 years . 577 287 15.8 22.0 22.1 218 9.0 60 3.0
25 years and over . 996 650 741 ag 382 49.3 3.6 22 14
25 to 34 years 400 00 29.6 179 15.3 227 39 22 17
35 to 44 years . 219 152 21.0 94 84 11.5 29 17 1.2
45 to 54 years 150 86 13.2 6.0 58 65 29 19 a
55 to 64 years 138 79 82 55 53 6.0 43 28 1.6
65 years and over 89 3 20 34 34 25 98 Al 26
Men 1,066 3 51.0 35.1 40.9 23.6 44 34 1.0
Women 1,542 | 1,008 49.0 49 50.1 76.4 86 52 340)
Husbands 163 54 274 5.5 63 41 1.3 1.0 3
Wives .......- . 426 318 243 18.9 16.3 24.1 5.0 29 21
Women who maintain families 183 110 61 74 7.0 83 7.9 5.0 3.0
‘Men who maintain families 18 6 1.8 6 7 5 23 1.6 5
Children! ........- 1,348 502 20.0 471 51.7 38.1 15.2 Wd 4t |
Other persons in families 130 4a 34 44 5.0 3.3 EAI 68 230!
Persons not in families? 340 286 176 15.9 13.0 216 58 32 27
Full-time workers: 838 474 749 334 32.1 35.9 29 18 1.0
Men 358 124 43.3 12.3 13.7 94 18 14 5
‘Women . 480 351 NE 214 18.4 26.6 43 25 18
Part-time workers: 1,770 845, 25.1 66.6 67.9 64.1 WA 11.6 5.6
Men 708 187 7.8 228 27.4 14.2 | 189 15.0 4.0
Women . . 1,062 657 17.4 43.8 40.7 498 | 163 10.1 62
White 2,047 | 1,188 84.2 82.4 78.5 90.1 63 40 23
Black 499 100 12.9 15.3 19.1 76 WT 64 13
Hispanic 278 44 89 82 10.7 33 6.0 5.2 8

1 Children 16 years of age or older.

2 Includes a small number of persons in unrelated subfamilies and persons in families

sin which the person maintaining the family is in the Armed Forces

a low of 3 percent for workers ages 35
to 54 but then rose for persons age 55
and over. Women were nearly twice as
likely as men, and part-time workers
were nearly six times as likely as full-
timers, to be minimum wage workers
in 1988.

Estimation methods

BLS has been estimating the number of
workers who earn the prevailing Fed-
eral minimum wage or less from data
on the earnings of workers who report
that they are paid hourly rates. When
an hourly paid worker is reported in the
cps, the respondent is then asked:
“How much does....earn per hour?”
These data, which were collected once
a year (in May) from 1973 to 1978,

have been obtained monthly from one-
fourth of the cps sample since 1979 and
have been used by BLS to construct an-
nual averages. However, it is impor-
tant to stress that, because only hourly
paid workers are asked the question
about hourly rates, the estimates ex-
clude all those who are paid at other
rates—such as a weekly or monthly
salary, a daily rate, or a pay plan based
solely on commissions or piecework.
This study presents a measure of
hourly earnings, derived from cps mi-
crodata, that extends beyond the uni-
verse of workers paid by the hour.
Such a measure is derived by dividing
responses to a CPS question on usual
weekly earnings by the responses to a
question on usual weekly hours.* This
measure is referred to as “usual hourly

earnings.” Because the weekly earn
ings measure specifically encompasses
all wage and salary earnings—includ-
ing overtime, tips, and commissions—
the resulting usual hourly earnings
measure should be much more compre-
hensive.

The measure has its limitations,
however, particularly as an estimate of
the number of workers earning more
than, less than, or precisely some
specified level, because it is based on
responses to two questions, each of
which is subject to respondent round-
ing of data and other imprecision. Al-
though the extent and direction of
rounding are not fully known, there Is
some evidence that respondents tend to
underreport total weekly earnings.* If
this is in fact the case, then the resul-

Monthly Labor Review January 1990 71


Research Summary

tant usual hourly earnings figures for
some workers may be lower than their
true earnings. Thus, the number of
low-wage workers based on the com-
puted measure of usual hourly earnings
may overstate the true count of such
workers. It may be reasonable, then,
to consider the estimated number of
workers with usual hourly earnings of
$3.35 or less a sort of upper bound to
the actual figure.

Findings. The construction of this
usual hourly earnings measure pro-
vides some additional insight into the
existing BLS method for computing the
number of minimum wage workers. As
noted earlier, the two major concerns
about the existing method are either
that it overstates the number by not
taking tips, commissions, and other in-
centives into account, or, alternatively,
that it understates the number by not
including salaried workers.

With regard to the first concern, we
find that among hourly paid workers,
the number whose usual hourly earn-
ings (as derived from their weekly

earnings) were $3.35 or less in 1988
was 3.3 million—600,000 fewer than
the number whose reported hourly
wages were at or below this level. This
total constituted about 5.5 percent of
all workers who were paid by the hour.
(See table 2.)

It should be noted that the decline of
600,000 in the number of minimum
wage workers is really the net result of
two effects. Some 1.5 million hourly
paid workers who reported wages of
$3.35 or less in 1988 appeared to have
supplemental compensation which
raised their usual hourly earnings
above this level. However, this figure
is partially offset by some 900,000
hourly paid workers who reported
wages above $3.35, yet whose usual
hourly earnings compute to less than
this level. The latter figure under-
scores the potential estimating prob-
lems inherent in the usual hourly
earnings measure.

The data also provide support for the
supposition that some salaried workers
(and others not paid hourly) earn the
minimum wage or less, when their

earnings are translated into hourly fig-
ures. In 1988, some 1.5 million work-
ers who were not paid at an hourly rate
had usual hourly earnings of $3.35 or
less.® Hence, with the use of this meas-
ure, the total number of workers (both
hourly and nonhourly) with usual
hourly earnings of $3.35 or less rose to
4.8 million. But even if this total is
used, minimum wage workers would
have accounted for only 4.7 percent of
all wage and salary workers in 1988.
Finally, a “composite hourly earn-
ings,” which combines low-wage
workers paid hourly rates (the pub-
lished measure) with those salaried
(and other) workers who also have low
hourly earnings, yielded a total of 5.4
million persons, or about 5.3 percent
of all workers. It is important to note
that the latter two approaches (which
include nonhourly workers) produce
lower proportions of low-wage work-
ers than does the hourly based esti-
mate.
The demographic profile of mini-
mum wage workers is not substantially
altered when different methods are

Table 2. Wage and salary workers with earnings of $3.35 per hour or less, calculated using
alternative earnings measures, by selected characteristics, 1988 annual averages
[Numbers in thousands]
Workers not paid
id hou! N
Workers pal inty rates: hourly All workers
Reported hourly | Computed hourly Computed hourly ‘Computed hourly | Composite hourly
Characteristic earnings earings earnings earnings earnings
Total | $3.35 | Percent | $3.35 | Percent | T!! | $3.35 | Percent | T!! | $3.35 | Percent | $3.35 | Percent
or of or of or of or of or of
less total less total less total less total less total
Total, 16 years and over 60,878 | 3,927 65 3,321 55 40,529 | 1,476 3.6 101,407 | 4,797 47 5,403 5.3
16 to 19 years 6,130 | 1,418 23.1 1,217 19.9 541 158 29.2 6,671 | 1,375 20.6 1,576 23.6
20 to 24 years 9,640 863 9.0 728 76 3,159 249 79 12,799 977 76 1,112 87
25 years and over 45,109 | 1,646 3.6 1,376 34 36,829 | 1,069 29 81.938 | 2,445 3.0 2,715 33
Men 31,058 | 1,377 44 1,195, 38 22,854 600 26 53.912 | 1,795 33 1,977 37
Women 29,820 | 2,560 8.6 2.126 Al 17,675 877 5.0 47,495 | 3,003 63 3,427 72
Husbands 16,510 217 1.3 185 Vt 16,042 225 1.4 32,552 411 13 442 14
Wives .... . 14,811 744 5.0 640 43 9,819 384 39 24,630 | 1,024 42 1,128 46
Women who maintain

families oo 3,693 292 79 238 64 2,080 88 42 5,773 325 5.6 380 66
Men who maintain families . 1,106 25 23 20 18 644 18 28 1,750 7 ral 42 24
‘Children’ 12,168 | 1,850 15.2 1,603 13.2 2,903 341 W7 15,071 | 1,945 12.9 2,191 14.5
Other persons in families 1,902 174 O41 151 79 663 54 81 2,566 204 8.0 228 89
Persons not in families? 10,688 625 58 484 45 8,377 67 44 19,066 850 45 992 5.2
Full-time workers . 45,587 | 1,312 29 1,075 24 37,104 B17 22 82,692 | 1,892 23 2,129 26
Part-time workers 15,291 | 2,614 Al 2,246 147 3,425 660 19.3 18,716 | 2,905 15.5 3,274 17.5

‘Children 16 years of age or older.

2 Includes a small number of persons in unrelated subfamilies and persons in families in which the person maintaining the family is in the Armed Forces.

72 Monthly Labor Review January 1990