Mar | Apr 2014


 
By Nicholas Johnson Vice President, State Fiscal Policy Center on Budget and Policy Priorities
When it comes to raising the minimum wage, the objection opponents most often make is that it will cost jobs. But the experience of numerous states proves otherwise. Several studies in recent years have shown, at most, only very little difference in employment for workers in affected industries in states that have raised their minimum wages compared to neighboring states that haven’t.
While Congress and the White House are likely to remain gridlocked on calls to raise the federal minimum wage, a growing number of states aren’t waiting. Taking the lead as Congress has dithered, 21 states and the District of Columbia have enacted minimum wages above the federal requirement of $7.25 an hour, ranging from $7.40 an hour in Michigan to $9.32 in Washington state. That’s up from 18 states in 2011, and the number may jump again next year—about a half-dozen states so far are considering minimum wage increases either in their legislatures or through ballot initiatives.
With the spread of low-wage jobs and growing income inequality, many states have concluded that the status quo—a federal minimum wage whose buying power is 22 percent below its late-1960s peak—is indefensible.
As my Center on Budget and Policy Priorities colleagues Jared Bernstein and Sharon Parrott have pointed out, more Americans who once formed the core of the middle class are relying on minimum wage jobs: 60 percent of low-wage workers (those earning less than $10 per hour in 2011 dollars) are between the ages of 25 and 64, up from less than half in 1979, and 43 percent have at least some college education, up from 25 percent. Two-thirds of the increase in the wage gap between middle- and low-wage women since 1979 reflects the erosion in the value of the minimum wage. For men, it explains 11 percent of the growth in the middle-to-low-wage gap.
Raising the minimum wage to $10.10 an hour over the next three years and then allowing regular increases for inflation, as President Obama recently proposed, would be enough to keep a family of three out of poverty and, by 2016, push the value of the minimum wage slightly above its 1960s peak. The impact would reach beyond workers who earn the minimum wage as businesses adjust their overall pay scales.
While business advocates and their allies argue that boosting the minimum wage hurts the low-wage workers it is designed to help by pricing them out of the job market, states as politically and economically diverse as Arizona, Connecticut, Montana, Rhode Island, Florida and New Jersey have boosted their minimum wages beyond the federal level. A growing body of evidence from those states and others shows the critics are wrong about the impact.
“In all cases, there is clear evidence that minimum wage increases raise total pay going to low-wage workers after factoring in both wage and employment changes,” economist Arindrajit Dube of the University of Massachusetts told the U.S. Senate Health, Education, Labor and Pensions Committee last March.
One of the most comprehensive studies of the issue—by Dube and a pair of economists from the universities of North Carolina and California—compared employment levels in restaurants and other low-wage workplaces in hundreds of neighboring counties that border each other across state lines and had different minimum wages between 1990 and 2006. After adjusting for local economic conditions, the study found “no detectable employment losses from the kind of minimum wage increases we have seen in the United States.”
A year later, the same methodology was used to study the effect on employment among teenagers. While most minimum wage workers are not teenagers, many teens who are working are affected by an increase in the minimum wage, so economists often focus on them when studying job effects.
The conclusion was the same: “Put simply, our findings indicate that minimum wage increases—in the range that have been implemented in the United States—do not reduce employment among teens.”
This was true even during economic downturns and in states that have automatic annual increases in their minimum wages. (Unlike the federal government, 10 states link their minimum wages to changes in the consumer price index.)
Both of those studies grew out of earlier, groundbreaking research by noted economists David Card and Alan Krueger, who compared fast food restaurants in New Jersey and Pennsylvania after New Jersey boosted its minimum wage in 1992.
“Our empirical findings challenge the prediction that a rise in the minimum wage reduces employment,” Card and Krueger concluded. “Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent.”
Anecdotal evidence backs up the conclusions of those research findings. After eight states—Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington—raised their minimum wages in 2012, they saw more robust job growth than the nation as a whole—1.7 percent versus 1.3 percent, according to the nonprofit research group New Jersey Policy Perspective.
Employers can respond to increases in the minimum wage in numerous ways instead of cutting jobs, including raising prices slightly and accepting modestly lower profits. Among the most frequent employer responses to increased minimum wages are reducing turnover, improving efficiency, reducing wages for higher earners and small price increases, economist John Schmitt of the Center for Economic and Policy Research concluded after reviewing numerous studies on the impact of minimum wage increases.
“Given the relatively small cost to employers of modest increases in the minimum wage, these adjustment mechanisms appear to be more than sufficient to avoid employment losses, even for employers with a large share of low-wage workers,” Schmitt wrote.
Many myths about the minimum wage are starting to fall by the wayside. For instance, some opponents of increasing it claim it would primarily benefit teenagers working for extra money. In reality, the vast majority of those who would benefit are adults—mostly women—and their families who depend on their paychecks.
It’s time to bury another myth—that raising the minimum wage will cost more, in lost jobs, than it helps. The evidence from the states that have stepped up to increase the wage shows that simply is not the case.