March 17, 2015

Bonus problems

If you hadn’t seen this graph yet, you probably would have soon.


The claim “Wall Street bonus were double the earnings of all full-time minimum wage workers in 2014” was made by the Institute for Policy Studies (which is where I got the graph) and fact-checked by the Upshot blog at the New York Times, so you’d expect it to be true, or at least true-ish. It probably isn’t, because the claim being checked was missing an important word and is using an unfortunate definition of another word. One of the first hints of a problem is the number of minimum wage workers: about a million, or about 2/3 of one percent of the labour force.  Given the usual narrative about the US and minimum-wage jobs, you’d expect this fraction to be higher.

The missing word is “federal”. The Bureau of Labor Statistics reports data on people paid at or below the federal minimum wage of $7.25/hour, but 29 states have higher minimum wages so their minimum-wage workers aren’t counted in this analysis. In most of these states the minimum is still under $8/hr. As a result, the proportion of hourly workers earning no more than federal minimum wage ranges from 1.2% in Oregon to 7.2% in Tennessee (PDF).  The full report — and even the report infographic — say “federal minimum wage”, but the graph above doesn’t, and neither does the graph from Mother Jones magazine (it even omits the numbers of people)

On top of those getting state minimum wage we’re still short quite a lot of people, because “full-time” is defined by 35 or more hours per week at your principal job.  If you have multiple part-time jobs, even if you work 60 or 80 hours a week, you are counted as part-time and not included in the graph.

Matt Levine writes:

There are about 167,800 people getting the bonuses, and about 1.03 million getting full-time minimum wage, which means that ballpark Wall Street bonuses are 12 times minimum wage. If the average bonus is half of total comp, a ratio I just made up, then that means that “Wall Street” pays, on average, 24 times minimum wage, or like $174 an hour, pre-tax. This is obviously not very scientific but that number seems plausible.

That’s slightly less scientific than the graph, but as he says, is plausible. In fact, it’s not as bad as I would have guessed.

What’s particularly upsetting is that you don’t need to exaggerate or use sloppy figures on this topic. It’s not even that controversial. Lots of people, even technocratic pro-growth economists, will tell you the US minimum wage is too low.  Lots of people will argue that Wall St extracts more money from the economy than it provides in actual value, with much better arguments than this.

By now you might think to check carefully that the original bar chart is at least drawn correctly.  It’s not. The blue bar is more than half the height of the red bar, not less than half.


Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »