The United States has one of the lowest minimum wages of any advanced democracy in the world. Those low wages are a factor in everything from rising income inequality to high child-poverty rates to high rates of public spending on assistance programs for low-income families.
As a result, in recent years there’s been a push to drastically scale up the minimum wage, including to $15 an hour by 2024 if some progressive groups have anything to say about it. Conservatives have warned of dire economic consequences if this happens: the elimination of millions of jobs. Steep price hikes. The death of the $5 foot-long.
Fortunately, a wave of minimum wage hikes at state and local levels in recent years means economists can stop arguing and start digging into some actual data on what happens when the wage floor rises.
The preliminary findings of a number of new studies were shared this month at the American Economic Association’s annual conference in Philadelphia. The presenters all stressed that the findings were early, incomplete and subject to considerable revision.
Overall, the papers presented a mixed picture on the effects of the minimum wage. Here’s what they found:
The statewide minimum wage in California gradually rose from $6.75 in 2006 to $10.50 in 2017, and it is slated to hit $15 in 2022. A team of economists at the University of California-Los Angeles examined the effect of the hikes so far, focusing on the impact on the restaurant industry.
Here’s what they estimate: “the increments in the minimum wage from 6.75 to $7.50 in 2007 and to $8 in 2008 were estimated to increase earnings in limited service restaurants slightly more than 10% but reduced employment by about 12%.” The bump up to $10.50 by 2017 raised earnings in those restaurants by another 20 percent, but reduced employment by another 10 percent.
Again: these are preliminary results and subject to change. The “conclusion” section of the paper contains just one line: “There is more work to be done.”
Chicago, Los Angeles, Oakland, San Francisco, San Jose, Seattle and Washington
A second paper by a U.C. Berkeley team looked at the effects of city-level minimum wage hikes in recent years. It compared those cities to economically-similar nearby counties. Across the cities, the paper found that wages were up while changes to employment were minimal: “We find significantly positive effects on wages and small effects on employment, consistent with many previous studies.”
Economists from the University of Washington presented a paper on the effects of the minimum wage in Seattle, which is headed toward $15 for all employers by 2021.
That paper, publicly released earlier this year, found that on average the minimum wage increases have caused employers to reduce hours, with a net effect of reducing low-wage employees’ earnings by $125 a month. Wonkblog noted earlier this year that the paper’s conclusions “contradict years of research on the minimum wage” and have left many researchers scratching their heads.
“It’s really important to emphasize it’s a work in progress,” one of the authors said at the time.
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Mixed findings like these aren’t likely to resolve partisan debates on the minimum wage any time soon. But they show a real possibility of negative effects, including effects on employment, that with which policymakers will have to grapple moving forward.
Some companies, meanwhile, are looking to get ahead of the debate by raising their own minimum wages voluntarily. This week Walmart announced it will be raising its minimum pay level to $11 an hour nationwide, in response to recently-passed corporate tax cuts as well as a similar move from competitor Target several months ago.