Carpe Diem

Team Obama struggles to explain, defend the 12% gender pay gap at the White House, first reported here seven months ago

whitehouseFor about the last seven months starting last September, I’ve been blogging about the 12% gender pay gap at the White House illustrated above, see my original post here, see a December 2013 post here, a January 2014 post here, another January 2014 post here, a February 2014 post about February 20 being “Equal Pay Day” at the White House for 2014, and a March 2014 post here. Not much happened until this week, when the story percolated long enough I guess, that it finally got some media traction and now it’s everywhere: Drudge Report, CNN, Bloomberg TV, Washington Post, New York Times, CBS news, talk radio, etc. And the result is that Jay Carney and Team Obama are now frantically trying to explain their own 12% gender pay gap, just as Obama issued two executive orders today concerning fair pay for women employed by federal contractors.

Here are some of the media reports over the last few days highlighting the White House’s hypocrisy on the gender wage gap:

1. Video (note that the opening graph features a variation of the chart above) and report below via Newsbusters:

On Tuesday’s CBS This Morning, White House correspondent Major Garrett completely dismantled President Obama’s left-wing talking points on the supposed gender pay gap of women making 77 cents on the dollar compared to men, reporting: “The White House is getting…roughed up by hits own pay equity rhetoric.”

Garrett used the administration’s hypocrisy on the issue to fact check the false claims: “An analysis of White House salaries, which nobody here disputes, shows that the median income of female staffers is 88% of that of male staffers….Now, the White House said its gender pay gap is tied to job experience, education, and hours worked, among other factors. This matters because those explanations, according to the Labor Department, explain a good deal of the gender pay gap nationally.

The big difference in these stories, when President Obama discusses this issue nationally he doesn’t mention those other work variables, only the broad figure that 77 cents per dollar is what women earn compared to men in median wages.”

2. Watch a video below of Jay Carney squirming as he unsuccessfully tries to defend the 12% gender pay gap at the White House, courtesy of the Washington Post, and see its report here titled “The White House’s own wage gender gap.

3. The New York Times reported yesterday that “As Obama Spotlights Gender Gap in Wages, His Own Payroll Draws Scrutiny.”

Even as Mr. Obama seeks to make an issue of the gender gap in compensation across the country, however, his own hiring is facing some scrutiny. The recent study, by the conservative American Enterprise Institute, showed that the median annual salary for women in the White House last year was $65,000, while the median annual salary for men was $73,729. The study was based on White House salary data.

4. In this video segment, CNN’s John King called the White House’s push for equal pay “A textbook case … of do as I say, not as I do.”

5. Fred Lucas reporting for The Blaze gives me a little credit in his report “Economics Professor: White House Holds Itself to a Different Standard on Gender Pay Equity.”

6. Here’s from another CNN report “Inside Politics: Equal Pay gap reaches White House“:

For the past several elections, Democrats have adopted the equal pay issue and made the equality of paychecks a huge priority. But the issue of equal pay plagues President Obama’s White House. An analysis by the conservative American Enterprise Institute found that women staffers made about 88 cents on the dollar, compared with male staffers.

Bottom Line: Along with my WSJ op-ed today with Andrew Biggs (“The ’77 Cents on the Dollar’ Myth About Women’s Pay“), it was a pretty good day for a dose of some overdue statistical and economic sanity, and a good day for exposing the ’77 cents on the dollar’ myth that has gradually morphed from a faulty or incomplete analysis of gender wage differentials into more of a political lie.

Carpe Diem

It’s ‘Equal Pay Day’ – a good time to expose the myth that won’t die – that women make 77 cents for every $1 men earn

From my op-ed in today’s Wall Street Journal with my AEI colleague Andrew Biggs (“The ’77 Cents on the Dollar’ Myth About Women’s Pay“):

Today, April 8, is “Equal Pay Day,” an annual event to raise awareness regarding the so-called gender wage gap. As President Obama said in the State of the Union address, women “still make 77 cents for every dollar a man earns,” a claim echoed by the National Committee on Pay Equity, the American Association of University Women and other progressive groups.

In its annual report, “Highlights of Women’s Earnings in 2012,” the Bureau of Labor Statistics states that “In 2012, women who were full-time wage and salary workers had median usual weekly earnings of $691. On average in 2012, women made about 81% of the median earnings of male full-time wage and salary workers ($854).” Give or take a few percentage points, the BLS appears to support the president’s claim.

While the BLS reports that full-time female workers earned 81% of full-time males, that is very different than saying that women earned 81% of what men earned for doing the same jobs, while working the same hours, with the same level of risk, with the same educational background and the same years of continuous, uninterrupted work experience, and assuming no gender differences in family roles like child care. In a more comprehensive study that controlled for most of these relevant variables simultaneously—such as that from economists June and Dave O’Neill for the American Enterprise Institute in 2012—nearly all of the 23% raw gender pay gap cited by Mr. Obama can be attributed to factors other than discrimination. The O’Neills conclude that, “labor market discrimination is unlikely to account for more than 5% but may not be present at all.”

These gender-disparity claims are also economically illogical. If women were paid 77 cents on the dollar, a profit-oriented firm could dramatically cut labor costs by replacing male employees with females. Progressives assume that businesses nickel-and-dime suppliers, customers, consultants, anyone with whom they come into contact—yet ignore a great opportunity to reduce wages costs by 23%. They don’t ignore the opportunity because it doesn’t exist. Women are not in fact paid 77 cents on the dollar for doing the same work as men.

Administration officials are (very) occasionally challenged on their discrimination claims. The reply is that even if lower average female pay is a result of women’s choices, those choices are themselves driven by discrimination. Yet the choice of college major is quite free, and many colleges recruit women into high-paying science or math majors. Likewise, many women prefer to stay home with their children. If doing so allows their husbands to maximize their own earnings, it’s not clear that the families are worse off. It makes no sense to sue employers for choices made by women years or decades earlier.

The administration’s claims regarding the gender pay gap are faulty, and its proposal to make it easier for women to sue employers for equal pay would create a disincentive for firms to hire women

Carpe Diem

‘Equal Pay Day’ this year falls on April 8; the next ‘Equal Occupational Fatality Day’ will occur on December 20, 2023


Every year the National Committee on Pay Equity (NCPE) publicizes “Equal Pay Day” to bring public attention to gender pay gap. “Equal Pay Day” this year will take place tomorrow on April 8, and represents how far allegedly into 2014 the average woman will have to continue working to earn the same income that the average man earned last year based on the questionable assumption that women working full-time earned 23% less than men on average last year.

President Obama will use “Equal Pay Day” this year to issue two new executive orders addressing the wage gap between men and women, including one that will require all federal contractors to report employee compensation data by race and sex to the Department of Labor. Interestingly, the White House has its own 12% gender wage gap as I reported recently on CD. In that post, I calculated that February 20 was “Equal Pay Day” at the White House this year, based on the fact that women working in the Obama White House earn only 88 cents on average for every dollar male staffers made in 2013. At a White House press briefing today, Jay Carney tried somewhat unsuccessfully to explain the 12% gender pay gap for White House staffers.

Inspired by Equal Pay Day, I introduced “Equal Occupational Fatality Day” back in 2010 to bring public awareness to the huge gender disparity in work-related deaths every year in the United States. “Equal Occupational Fatality Day” tells us how many years into the future women would have to work before they would experience the same number of occupational fatalities that occurred in the previous year for men.

Using annual Bureau of Labor Statistics (BLS) data on workplace fatalities by gender for 2012 (and assuming those fatality data will be similar in 2013 – the actual data won’t be available until August) an “Equal Occupational Fatality Day” can be calculated. As in previous years, the chart above shows the significant gender disparity in workplace fatalities in 2012: 4,045 men died on the job (92.3% of the total) compared to only 338 women (7.7% of the total). The “gender occupational fatality gap” in 2012 was considerable — almost 12 men died on the job for every woman who died while working.

Based on the BLS data on occupational deaths by gender, the next “Equal Occupational Fatality Day” will occur almost ten years from now ­­– on December 20, 2023. That date symbolizes how far into the future women will be able to continue working before they experience the same estimated loss of life that men experienced in 2013 from work-related deaths. Because women tend to work in safer occupations than men on average, they have the advantage of being able to work for more than a decade longer than men before they experience the same number of male occupational fatalities in a single year.

Economic theory tells us that the “gender occupational fatality gap” explains part of the “gender pay gap” because a disproportionate number of men work in higher-risk, but higher-paid occupations like coal mining (almost 100 % male), fire fighters (96.6% male), police officers (84.8% male), correctional officers (72% male), farming, fishing, and forestry (77.3% male), roofers (98.5% male) and construction (97.5% male); BLS data here. On the other hand, a disproportionate number of women work in relatively low-risk industries, often with lower pay to partially compensate for the safer, more comfortable indoor office environments in occupations like office and administrative support (73.3% female), education, training, and library occupations (73.6% female), and healthcare (75% female). The higher concentrations of men in riskier occupations with greater occurrences of workplace injuries and fatalities suggest that more men than women are willing to expose themselves to work-related injury or death in exchange for higher wages. In contrast, women more than men prefer lower risk occupations with greater workplace safety, and are frequently willing to accept lower wages for the reduced probability of work-related injury or death.

Bottom Line: Groups like the NCPE use “Equal Pay Day” to promote a goal of perfect gender pay equity, probably not realizing that they are simultaneously advocating an increase in the number of women working in higher-paying, but higher-risk occupations like fire-fighting, roofing, construction, farming and mining. The reality is that a reduction in the gender pay gap would come at a huge cost: several thousand more women will be killed each year working in dangerous occupations.

Here’s a question for the NCPE that I ask every year: Closing the “gender pay gap” could only be achieved by closing the “occupational fatality gap.” Would achieving the goal of perfect pay equity really be worth the loss of life for thousands of additional women each year who would die in work-related accidents?

Carpe Diem

The average US CEO last year made only $178,400 (about the same as a dentist), and got a raise of less than 1%

Occupation Average Annual Wage, 2013
Anesthesiologists $235,070
Surgeons $233,150
Oral Surgeons $218,960
Obstetricians $212,570
Orthodontist $196,270
Internists $188,440
Family Practitioners $183,940
Psychiatrist $182,660
Chief Executives $178,400
Dentist $168,870
Nurse Anesthetist $156,690
Petroleum Engineer $149,180
Average for All Workers

Every time CEO salaries of S&P500 companies are reported, there’s a lot of hand-wringing, criticism of “excessive CEO compensation,” and the inevitable comparisons of rising CEO salaries to stagnant pay for average workers, and how that contributes to rising income inequality, etc. For example, here’s how USAToday reported 2013 CEO pay in an article last week titled “Millions by millions, CEO pay goes up“:

When it comes to executive pay, 2013 could be one for the record books, with 15 CEOs and other key members of publicly held companies gaining membership into the $100 million-plus compensation club, likely the most since before the 2008 financial crisis.

USA TODAY’s analysis of Standard & Poor’s 500 companies headed by the same CEO the past two fiscal years shows 2013 median pay — including salary, bonus, incentive awards, perks and gains from vested shares and exercised stock options — jumped 13% to $10.5 million, a level buoyed by soaring stock prices that’s likely to rise as more companies meet annual Securities and Exchange Commission filing deadlines.

Coming in a year in which corporate earnings gains continue to come mostly from job cuts and streamlining instead of organic growth, as well as nearly a decade of stagnant wage growth for rank-and-file workers, continued gains in CEO pay underscore the disconnect between boardrooms and Main Street. Among the nation’s 104.8 million full-time workers, average median annual wages were $40,872 last year, up just 1.4% over 2012.

“The extremes are getting bigger and run smack dab into the debate of income inequality,” says veteran compensation consultant Alan Johnson.

MP: It should be noted that USAToday’s analysis includes the CEOs of only 200 of America’s largest multinational companies in the S&P500. According to the US Census, there are more than 27 million private firms in the US, so the 200 firms reported by USAToday represent only one of every 135,000 private firms in the US, or 0.00074% (less than 1/1000 of 1%). Note also that USAToday compares the annual wages of ALL full-time employees working at more than 27 million companies to the CEO pay of executives at only 200 companies.

We can get a more accurate and complete picture of CEO compensation by looking at wage data just released by the Bureau of Labor Statistics in its annual report on Occupational Employment and Wages for 2013. The BLS report provides “employment and wage estimates by area and by industry for wage and salary workers in 22 major occupational groups,” including the category “chief executives.” In 2013, the BLS reports that the average pay for America’s 248,760 chief executives was only $178,400. The 200 S&P500 firms reported by USAToday represent only one out of every 1,243 firms in the country that have a CEO at the head, and that small sample of 200 would represent only 0.08% of American CEOs, or less than one-tenth of one percent of all CEOs. The larger sample of CEOs reported by the BLS gives us a much better understanding of “average CEO compensation.”

For the larger sample of CEOs reported by the BLS, their average pay increased by only 0.88% in 2013, from $176,840 in 2012. In contrast, the BLS reports that the average pay of all workers increased by 1.42% last year to $46,440 from $45,790 in 2012. That’s right, the average worker last year saw an increase in their pay that was more than 60% greater than the increase in pay for the average CEO.

As the Wall Street Journal pointed out last week, the average U.S. orthodontist earns $196,270, or 10% more than the average CEO ($178,400). But you would certainly never think that from all of the media hype about “overpaid CEOs” and “excessive CEO compensation,” etc. We never hear about “overpaid orthodontists” or “excessive orthodontist compensation,” or the fact that orthodontist pay increased by 5.34% in 2013, or 6 times the 0.88% increase in the average CEO’s pay last year. You would also never think that the average dentist makes $168,870, almost as much as the average CEO. “Excessive dentist compensation”?

Other medical professionals like anesthesiologists ($235,000), surgeons ($233,000), obstetricians ($212,000), internists ($188,000), family practitioners $184,000), and psychiatrists ($183,000) all earned more on average last year than the average CEO. Even the average nurse anesthetist ($158,000) and petroleum engineer ($149,000) earned salaries last year that weren’t too far below the average CEO (see table above).

Bottom Line: Discussions about “excessive CEO pay” are distorted by looking at only an outlier group of the 200 CEOs of America’s largest companies, out of 248,760 chief executives nationwide. Of course, many young, risk-taking CEOs are running early stage startups and tech companies, and probably make even less than the average CEO as reported by the BLS, as Scott Drum points out to me in an email. Further, he comments that “They’re usually not in it for the salary. They’re in it for the payoff if things go well. If we reduce the size of the Big Payoff, don’t we affect the number of people trying to get there?” The fact that there are almost 250,000 ambitious CEOs making less than $200,000 today on average who are trying to someday be listed by USAToday as one of the top 200 highest-paid CEOs in the US is a sign of a dynamic, wealth-generating economy. We should applaud the richest 200 CEOs as a group of the most successful American business professionals, and not vilify them. And we should keep in mind that they are an outlier, elite group, and not representative of the average CEO in America, who earns about as much as the average dentist.

Carpe Diem

Markets in everything: Tide laundry soap as street currency?

tideHas anybody else noticed these theft-detection devices on Tide laundry detergent! I took the photo above today at a local CVS store in DC, where the Tide laundry detergent containers, but nothing else in the store, had the type of theft detection devices that you usually see on high-end clothing in department stores. But is CVS really worried now about theft of Tide laundry detergent? Apparently so, and a post at the Priceonomics blog titled “Why Thieves Steal Soap” explains what’s going on:

In fact, the consistent demand for products like soap on the illicit market can make it as good as stealing cash. Last year, for example, New York Magazine ran a story describing how thieves steal Tide Detergent to buy drugs. The piece opens by describing one Safeway store that lost $10,000 to $15,000 a month to thefts of Tide detergent.

And this interesting excerpt from the New York Magazine story mentioned above:

It turned out Tide laundry detergent wasn’t ­being used as an ingredient in some new recipe for getting high, but instead to buy drugs themselves. Tide bottles have become ad hoc street currency, with a 150-ounce bottle going for either $5 cash or $10 worth of weed or crack cocaine. On certain corners, the detergent has earned a new nickname: “Liquid gold.” The Tide people would never sanction that tag line, of course. But this unlikely black market would not have formed if they weren’t so good at pushing their product.

MP: Seems like as an alternative currency, Tide laundry detergent has become something like a “ghetto Bitcoin”?

Carpe Diem

Thanks to a private-public taxi cartel in NYC, the value of a taxi medallion has increased 5X times faster than the S&P500


The chart above shows the cumulative percentage increase since January 2004 for: a) New York City taxi medallions and b) the S&P 500 Stock Index. Here’s a summary:

1. The market value of NYC taxi medallions have increased from $241,000 in January 2004 to $1,050,000 last June, where the value has remained flat for the last ten months through March. That’s a cumulative return on investment of 336% over the last decade for owning a taxi medallion, and an annual return of almost 16%.

2. In comparison, over the same ten-year period, the S&P500 Stock Index has increased only 64.5% in total, and by only 5.1% per year. If $241,000 had been invested in the S&P500 in January 2004 (instead of purchasing a NYC taxi medallion then) that investment would have increased in value to only $396,445 today, or about $654,000 less than the current $1,050,000 value of a NYC taxi medallion.

Q: Why has an investment in a NYC taxi medallion generated an annual return on investment (15.9%) over the last decade that is more than three times greater than the annual return on the US stock market (5.1%)?

A: The NYC taxi system is operated like a classic cartel that in this case involves restricting the supply of taxis operating in the city, which limits competition and raises prices above market-determined levels, and generates above-market profits and returns for medallions owners. As BloombergBusinessweek explained it recently, “The underlying value [of a medallion] rests on the fact that there are fewer cabs than people who want rides.” In fact, there are fewer NYC taxi medallions today (13,605) than there were in 1937 (16,900) when the medallion system first created the NYC taxi cartel.

As you can imagine, since the value of taxi medallions (and the profitability of a taxi cartel) can only be supported by artificially restricting competition, the taxi cartel is not happy about the new competition from app-enabled ridesharing services like Uber, UberX, Lyft and Sidecar. That increasing competition from ridesharing services in NYC may explain why, for the time in at least a decade, the auction value of a NYC taxi medallion hasn’t increased now for almost a year. And the taxi cartels, and their government enablers/enforcers, around the country are fighting back.

Here are some excerpts from a long essay in Daily Tech titled “Cities to Carpoolers: Sharing Your Car is Illegal, We Will Seize Your Cars,” which summarizes some of the battles around the country between the new ridesharing services and the taxi cartels:

The U.S. isn’t exactly a “free market” at times, with outright bribery — condoned by the U.S. judicial system — or collusive public-private cartels leading to some products and services being banned from the market. Just ask Tesla Motors Inc. (TSLA) whose electric vehicles have been banned from sale in many states. That debacle arose due to the fact that Tesla has no dealerships and fearful dealership lobbyists banded together to pay off state politicians to ban direct auto sales.

Now the same principle is being applied to stymie the emergency of another set of companies in the transportation sector — cloud-driven ride-sharing services.
Ridesharing — also known as carpooling — involves members of the public contacting each other via a smartphone or PC internet networking service and arranging to ferry each other to various destinations for fees.  The practice in informal form is almost as old as the automobile itself, but in the digital age app-enabled ridesharing has seen an explosion in interest, threatening the commercial taxicab industry and the city officials who depend on that industry for revenue.

All of the ride-sharing companies operate on the same principle, claiming that their fares are “voluntary” and admittedly fluctuating based on supply and demand. Because they aren’t charging rigid rates, they claim they are not subject to local ordinances in various cities that require taxicabs to pay per-cab tolls to city transportation departments/agencies.

Cities transportation agencies are pretty upset about not getting their cut of the pie. They’ve circled the wagons in many jurisidictions, backed by the traditional taxicab industry who views these disruptive new players as an unlawful threat.

After reviewing the increasing trend towards imposing more and more restrictions on ridesharing services around the country in California, Philadelphia, Minneapolis, Seattle, Las Vegas, Washington, D.C., Austin, and Boston, the author Jason Mick comes to this pretty depressing conclusion about the future of ridesharing in America:

In short, the number of cities where paid carpoolers can legal operate is dwindling at an alarmingly rapid rate. At this point quite literally the risk of carpooling is becoming that you will get your car impounded/seized and be forced to pay steep fines.

Ride sharing and carpooling for pay in the U.S. — once a booming field of dreams — has been methodically shut down and beaten back by the loving hand of government regulators and taxicab industry. Thanks to those cartels, this once thriving sector is now on the death’s door, as the nation’s top cities approach a ubiquitous ban on sharing.

MP: I’m somewhat more optimistic about the future of app-driven ridesharing. The “ridesharing genie is out of the bottle” and too many consumers in too many cities have “gotten a taste” of the convenience and affordability of ridesharing services like Uber and Lyft, and they’ll never want to go back to the traditional taxi cartel model. Hopefully, too many people have figured out by now that the traditional taxi cartel model is a total consumer rip-off, and is an outdated form of business that won’t survive the power of app-enabled consumers who will demand service, affordability and the convenience that taxi cartels can’t deliver. We’ll know that taxi cartels are losing power when we see it reflected in stagnant or falling taxi medallion values, and we may have already seen that starting to happen in NYC. For example, over the last year from March 2013 to March 2014, the annual return on a NYC taxi medallion at 14.5% was less than the 20.1% annual return on the S&P500, and that has almost never happened before. Expect the app-enabled “creative destruction” and “collaborative consumption” of ridesharing to continue and thrive.

Carpe Diem

Quotation of the day on Obamacare….

…. is from Shika Dalmia, writing in Reason (“Obamacare’s Bogus Enrollment Claims“):

To recap: Obamacare has extended coverage to a far smaller portion of the uninsured than expected, caused millions of others to lose coverage, raised out-of-pocket costs for many middle-income consumers, diminished patient choice of doctors and hospitals and exposed Americans to future premium hikes.

Nor are things likely to get better next year. That’s because the mix of the new Obamacare sign-ups is so skewed toward the old and the sick that some experts are expecting premiums to double. This is why Americans are not popping the cork. Nor should the administration.

Related: In the video segment below, Charles Krauthammer blasts Obamacare’s ‘phony’ 7.1 million enrollment number:

Carpe Diem

Saturday afternoon links


1. Chart of the Day: Since January 2007, oil and gas industry jobs (both extraction and support jobs) have increased by 58% through February 2014. During the same period, overall US payroll employment has increased by only 0.21% (1/5 of 1%).

2. Fascinating: Why UPS Trucks Don’t Turn Left.

3. My article with Andrew Biggs in Real Clear Markets: “One Size Doesn’t Fit All: The Long-Lasting Damage Of a National Minimum Wage

4. CHART: Average length of PhD dissertations by academic discipline.

5. Charles Murray: “The Huffington Post announces that I’m not only a white supremacist but a male supremacist.” Charles responds.

6. Andrew Sullivan responds to the firing of Mozilla CEO Brendan Eich, who was “scalped by some gay activists” for having “the gall to express his First Amendment rights and favor Prop 8 in California”:

The whole episode disgusts me – as it should disgust anyone interested in a tolerant and diverse society. If this is the gay rights movement today – hounding our opponents with a fanaticism more like the religious right than anyone else – then count me out. If we are about intimidating the free speech of others, we are no better than the anti-gay bullies who came before us.

Mozilla Update 1: From IBD, “In the Mozilla Case, The Left’s Intolerance Is Out Of The Closet

Mozilla Update 2: From Scott Johnson at Powerline, “The Rise of Totalitarian Liberalism“:

Jonah Goldberg wrote the book on Liberal Fascism. “It is my argument,” he writes, “that American liberalism is a totalitarian political religion.” Mozilla’s highly illuminating statement shows us liberals at prayer.

7. CHART: You can track the negative responses to Mozilla’s attack on free speech here.

8. Free Market Health Care: Oklahoma County’s employee health care plan is self-financed, making county officials price-sensitive. That’s why they just signed a contract with the industry leader in market-based, low-cost health care with transparent pricing – the Surgery Center of Oklahoma.  With surgery prices that are 85-90% lower than most hospitals, the county could save $1 million per year, according to this report.

9. Free Market Health Care II: Ocean Surgery Center in Torrance CA was inspired by, and now follows, the transparent pricing of the Surgery Center of Oklahoma and its “principles of free market to empower patients” and “re-centering value around the patient.” I say, “Let a thousand free-market based surgery centers with transparent pricing bloom across America” as an antidote to the Unaffordable Care Act.

10. Map of the Day: “I, Nutella” – the product’s global supply chain.  (Bonus: Watch “I, Pencil – The Movie” here.)


Carpe Diem

Some minimum wage workers would face a 50% tax rate if Obama and Dems raise the minimum wage to $10.10 per hour

minwageshare2Forbes contributor Jeffrey Dorfman crunches the numbers and finds that a single mom (with one child) working at the minimum wage would face the equivalent of a 50% tax rate (from both higher payroll taxes and a loss in government benefits) if Obama is successful at raising the federal minimum wage to $10.10 per hour. Here’s how some minimum wage workers would be taxed at a higher rate than the “top 1%” by Obama’s “compassionate” 40% minimum wage hike:

A hypothetical single mom with one kid would see more than half of the proposed minimum wage increase offset by a reduction in benefits from the federal government and increased taxes. For those actually in or near poverty, however, any gain in wage earnings causes a significant loss in benefits that severely curtails the claimed impact of a minimum wage increase at lifting the working poor out of poverty. Essentially, these workers face the equivalent of a 50 percent or higher tax rate.

For a hypothetical single mom with one kid, how would an increase in the minimum wage impact total income including government benefits? First, I assume our mom works full-time at the current minimum wage, thus earning about $15,000 per year. That means her family officially lives in poverty. I also assume that she collects the Earned Income Tax Credit, pays no federal income taxes, receives food stamps, and receives a Low Income Home Energy Assistance Program benefit. I also assume she keeps her job and does not have her hours reduced as a result of the increase in the minimum wage.

If the minimum wage is raised from $7.25 to $10.10 per hour, the single mom gains $2.85 per hour in extra pay, translating into an extra $494 per month or $5,928 per year in extra wage income. That sounds like a big raise and would officially lift this family out of poverty. It all sounds just like the President says up to this point. But, now let’s make some subtractions.

First, our single working mom’s Earned Income Tax Credit will be reduced by 15.98 percent of any earnings above $17,830 because the credit phases out as extra income is earned. That means our mom loses $0.24 per hour of her $2.85 raise.  She also has to pay employment taxes on her new earnings, costing her $0.22 per hour. The increase in earnings would cut her SNAP benefits (food stamps) by $150 per month which equals another $0.91 per hour.

Calculating the Low Income Home Energy Assistance Program (LIHEAP) benefit change is tricky. However, if we place our single mom in Illinois (President Obama’s home state), her LIHEAP benefit will drop from 50 percent of her expected winter bill to only 40 percent. Based on information provided by the State of Illinois, the smallest change in benefits would be for gas heat, electric falls in the middle, and our mom would lose the most if she had propane or fuel oil as her energy source. I assume electric heat (the middle figure), meaning our mom will lose $126 per year or $0.06 per hour, from the reduction in our heating bill subsidy.

Summing these four offsets, we find that our mom has lost $1.43 of the original $2.85 per hour raise (see table above). That means her extra $494 per month is now only $246 and the extra $5,928 per year is really only $2,954. Certainly, our single mom is still better off after an increase in the minimum wage. Amazingly, however, the federal government ended up with 50.2 percent of the extra cost imposed on the employer while our in-poverty, full-time working single mom got to keep only 49.8 percent of the extra money she “earned.”

Raising the minimum wage is a bad way to help poor working people. This is well known by everyone involved in economic policy. What is not well known is that if President Obama succeeds in securing the minimum wage increase he is seeking, the government could end up with more than half of the increased pay gained by some of the minimum wage workers he claims to want to help. That means these minimum wage workers face a higher effective tax rate than most people in the top one percent. If this is Democrats’ idea of helping poor people, poor people need to start voting Republican.

Related: See the infographic titled “The Benefits of Raising the Minimum Wage for America’s Women” from the Obama White House.