Minimum Wage Hikes Hurt Employment
January 15, 2015
Lawmakers in the federal government and in states across the country have been debating the minimum wage in recent months, with supporters insisting the laws would help low-income workers and detractors saying the opposite. Who's right? A new study from University of California-San Diego researchers Jeffrey Clemens and Michael Wither concludes that wage hikes have negative effects on employment.
Clemens and Wither analyzed labor market data prior to and after the July 2009 wage hike that raised the federal minimum wage to $7.25 per hour. As a result of the federal mandate, half of the states saw their minimum wages rise by 70 cents to match the federal level, while the other half increased their wages by just 10 cents.
What did they find?
- Two years after the $7.25 wage became effective, the employment rate among low-skilled workers had fallen 8 percent more in the states where the minimum wage increased by 70 cents than in the other states.
- During the late 2000s, the United States saw a 30 percent increase in the average effective minimum wage increase, which reduced adult employment by 0.7 percentage points.
- These minimum wage increases were responsible for 14 percent of the fall in the employment rate, equal to 1.4 million workers.
- Forty-five percent of workers affected were between the ages of 15 and 24.
- Low-skilled workers actually saw a drop in incomes after the wage increases, falling by $100 on average during the first year and $50 in the two years after that.
- Two years after the 2009 increases, low-skilled workers in the states with the biggest wage increases were much less likely to move into jobs with higher wages.
Clemens and Wither say that while the minimum wage is intended to improve incomes for low-skilled Americans, it has actually had a negative impact on employment. They suggest that federal lawmakers should instead focus on the Earned Income Tax Credit (EITC) as a means of improving the economic well-being of low-income workers, as the EITC provides aid to low-income workers without burdening employers.
Source: Jeffrey Clemens and Michael Wither, "How much have minimum wage increases contributed to the US employment slump?" VoxEU.org, January 14, 2015.
Browse more articles on Economic Issues