The min wage public debate focuses on the trade-off between higher earnings for workers and lower overall employment from job cuts and reduced hours. Min wage is one of the most studied topics in economics. Therefore, I have included links to studies-of-studies and their conclusions. To make the wage-employment trade-off more tangible, I have included several studies focused on local effects and specific industries (such as restaurants). The table below lists the main conclusions that may sway one to the plus or minus sides of this policy debate.
Public Debate Question #1: Do the wage gains exceed the job losses from minimum wage laws? *
|+ If legislation is structured properly, the higher earnings and consumer spending benefits outweigh the job cuts, strain on businesses, and higher consumer prices. Most studies conclude that employment losses are minimal, especially if gradually phased-in. Min wages have not kept pace with productivity gains.||– Large jumps in the min wage, such as the currently proposed national $15 hour, risk large employment cutbacks. Job growth slows. Studies show large employment loss. Other public policies may be more effective in helping low income households and are more business-friendly, such as the earned income tax credit. Small impact on families in poverty.|
|Gradual and modest min wage increases lowers the risk of job losses. Less job turnover results in large employer savings.||Some employers simply do not comply with legislation. Smaller businesses more likely to fail.|
|Price increases to consumers can be absorbed fairly easily||Lower skilled workers get laid off in favor of higher skilled workers|
|In markets with a surplus of low skilled workers, employers’ wage setting power (monopsony) can support higher mandated wages w/o lowering overall employment||Employers offer more rigid wage-hours choices. Smallest, weakest employers experience higher rate of loan defaults and bankruptcy for $1 increase.|
Minimum Wage Articles/Papers (relates to Public Debate Question #1)
Vox.com Jan 2021, Review of studies, methodological arguments, new approaches
Shorenstein Center, Nov 19, 2019, study of studies, some highlights: “Wolfson and Belman looked at 15 years of research since 2000 in a paper published July 2019 in Labour. Across 37 studies and 739 estimates of how minimum wage affects employment, they found “the minimum wage has negative employment effects, but these have become notably smaller and are largely localized to teenagers.” They speculate that the smaller employment downturns from higher minimum wages might be because teenagers don’t work as much as they used to…”Another recent analysis in the Quarterly Journal of Economics examined 138 state minimum wage increases from 1979 to 2016 and found “the overall number of low-wage jobs remained essentially unchanged over the five years following the increase.” “San Diego State economist Joseph Sabia and Cornell University economist Richard Burkhauser have found that state and federal minimum wage increases from 2003 to 2007 didn’t affect state poverty rates, and that the working poor were hit hardest by job losses.”
American Action Forum, Feb 7, 2019. Testimony to House Committee on Education & Labor and study of studies. “More than doubling the federal minimum wage to $15 per hour, however, could impose job loss so severe that it sets the labor market back several years.” Paper cites other studies that show significant employment loss (such as Seattle) and AAF’s 2015 study that used CBO methods.
Effects of Raising Min Wage to $15 (American Action Forum, Testimony to Congress 2019)
Liberty Street Economics (a Federal Reserve blog), September 2019. Article compares trends in employment and wages across counties along both sides of the New York-Pennsylvania border (PA without and NY min wage increases) “In gauging the effects of New York’s escalating minimum wage on two sizable low-wage industry sectors, one growing (leisure & hospitality) and the other shrinking (retail trade), we find that it appears to have had a positive effect on average wages but no discernible effect on employment. It is possible that there was some negative effect on weekly hours worked, though that would imply an even stronger upward effect on hourly wages. However, longer-term effects, if any, remain to be seen.”
National Bureau of Economic research, June 2017. Study of Seattle min wage, “…conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by 6-7 percent, while hourly wages in such jobs increased by 3 percent. Consequently, total payroll for such jobs decreased, implying that the Ordinance lowered the amount paid to workers in low-wage jobs by an average of $74 per month per job in 2016.”
Center on Wage & Employment Dynamics, UC Berkeley, June 2017. Study of Seattle min wage , “…minimum wages in Seattle up to $13 per hour raised wages for low-paid workers without causing disemployment. Each ten percent minimum wage increase in Seattle raised pay by nearly one percent in food services overall and by 2.3 percent in limited-service restaurants.” “Unobserved factors, such as Seattle’s hot labor market compared to that in Synthetic Seattle (Tu, Lerman and Gates 2017), may have positively affected Seattle’s low-wage employment during this period. We will monitor this possibility as the city’s $15 policy continues to phase in.”
National Bureau of Economic research, May 2020. Min Wage increases encourage employers to substitute unskilled workers for higher skilled workers, hurting the poorest. Also, employers may offer a more rigid menu of wage-hours combinations.
National Bureau of Economic research, July 2019. Minimum wage-induced employment changes become less negative (fewer job cuts) as labor concentration increases (more low skilled workers) , and are even estimated to be positive in the most highly concentrated markets. Authors say findings provide direct empirical evidence supporting the near-zero minimum wage employment effect documented in prior work.
Center on Budget and Policy Priorities, Feb 2013. Review of studies to date indicate that negative employment effects are minimal due to reductions in labor turnover, improvements in organizational efficiency, reductions in wages of higher earners (“wage compression”), and small increases in prices.
Congressional Budget Office, July 2019. “By 2025, the $15 option would boost the wages of 17 million workers. But 1.3 million other workers would become jobless. There is a two-thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers.”
American Action Forum and Manhattan Institute, Feb 7, 2019. “…a $15-per-hour minimum wage could mean the loss of 6.6 million jobs. What’s more, despite the fact that there would be some Americans whose wages would be lifted by a higher minimum wage, the effect on the poor would be minimal—of the increase in income for low-wage workers, only 6.7 percent would go to families in poverty.”
National Bureau of Economic research, Dec 2019. The authors show that the financial strains from minimum wage increases are largest for businesses that are very small, young, labor-intensive, or located in low-income areas, suggesting these firms have the least flexibility in absorbing higher labor costs.
Equitable Growth, Jan 2021. Author posits that factors such as differentiated jobs, heterogeneous worker preferences, and search friction, mean that every labor market is intrinsically characterized by a baseline level of monopsony power, where firms have the ability to set wages below workers’ productivity.
U.S. Living Wage Estimates by State & County Compared to Current Min Wage (MIT, current)
Value of $15/hour Minimum Wage by State & County (Pew Research, August 2015))
Wage Growth Tracker by Job Type and Demographics (Federal Reserve, Atlanta)
Raises in 2021 From Coast-to-Coast (National Employment Law Project, Dec 2020)
|Public Debate Issue 2: Should min wage legislation be part of a larger societal goal to help low income households?|
|+ Min wage should complement other programs such as Earned Income Tax Credit (EITC) and other work incentives.||– Min wage laws risk employment loss, discourage business expansion, etc. Other programs are more effective such as the EITC.|
|Value of min wage legislation relative to other programs to support low income households is beyond the scope of this one person shop.|