State poverty report fails statistical sniff test

Original Article:

  • Author: Michael Saltsman

  • Publication Date: November 2014

  • Newspaper: Green Bay Press Gazette

A report by the labor union-backed Center on Wisconsin Strategy (COWS), based at the University of Wisconsin-Madison, suggests that the state is awash in low-paying jobs.

The researchers’ headline finding is that one in four Wisconsin employees works in a “poverty wage” job that wouldn’t support a family of four.

Residents and policymakers shouldn’t panic just yet. A closer looks at COWS’ analysis suggests the “problem” they’ve identified is more fiction than fact.

The report’s authors, Laura Dresser and Jody Knauss, reached their eye-catching conclusion by calculating the hourly wage ($11.36) that it takes to keep a family of four out of poverty. That’s a problematic argument, because the vast majority of Wisconsin residents don’t live in a household with four people. In fact, data from the Census Bureau show that almost two-thirds of the state either lives by themselves or with one other person.

That raises a related question: Who are the 700,000 Wisconsin workers who earn less than $11.36 an hour, if they’re not supporting families of four? The COWS authors might have mentioned that, according the Bureau of Labor Statistics, 414,000 people in the state’s workforce are between the ages of 16 and 24. Not only is it plausible for people in this age range to earn a lower wage — it’s normal and expected.

Nationwide, the median weekly wage for this group is $454, or about $11.35 an hour for someone working full time. That puts a typical young adult earning $11.35 an hour in Wisconsin right in the middle of the pack. Nothing to write home about, perhaps, but certainly not a “crisis” or an anomaly.

The COWS report also runs into trouble by consistently referring to “poverty wage” workers without bothering to explore what sort of household they might be living in. To take a relevant example, the average family income in Wisconsin of an employee earning between $7.25 and $10.10 (the new minimum wage that COWS supports) is $58,812. That’s because many of these lower-wage employees are second- or third-earners in a higher-income household.

To wit: A teen earning less than $11.36 an hour and living with his parents in the resort town of Lake Geneva is not living in poverty.

Wisconsin’s official poverty rate is 11 percent, suggesting that 1 in 9 state residents (rather than 1 in 4 employees) is truly in financial hardship. But the fix for this problem is far more complex than forcing employers to pay more, as COWS would have them do. According to the Census Bureau, roughly 60 percent of the poor are not employed so a wage mandate won’t help them. They need a job, not a raise.

In fact, a minimum wage hike in Wisconsin would likely to do more harm than good. According to economists at the University of California-Irvine and the Federal Reserve Board, the vast majority of academic research — including 85 percent of the best studies since the early 1990s — points to job loss following a minimum wage increase.

Expanding upon policies like the Earned Income Tax Credit, which boosts wages through the tax code instead of a mandate on employers, holds far more promise for reducing poverty among low wage employees than the poorly-conceived ideas coming out of COWS.