NCPA - National Center for Policy Analysis


December 9, 2005

In June 2004 Santa Fe became one of three cities in the United States to pass a city-wide minimum wage applying to private businesses. The city's increase to $8.50 an hour -- a 65 percent increase -- affected all businesses within city limits employing more the 25 people.

Aaron Yelowitz of the University of Kentucky found that Santa Fe's minimum wage had significant and negative effects on the labor market. Even more troubling, he found that the negative effects of the wage hike were concentrated on the least-skilled members of the economy -- the very individuals the increase was intended to help.

He found:

  • The likelihood of unemployment for employees in Santa Fe went up by 3.3 percent.
  • For less-educated employees, however, the results were much higher, with their likelihood of unemployment increasing 8.3 percentage points.
  • The usual hours of work fell by 1.0 hours for the full sample and 3.2 hours for less-educated individuals.
  • There was significant evidence to suggest the displacement of adult employees by unmarried high school age employees.

These are all unintended consequences that should give pause to any claims of success of the ordinance, says Yelowitz.

Source: Aaron S. Yelowitz, "How Did the $8.50 Citywide Minimum Wage Affect the Santa Fe Labor Market? A Comprehensive Examination," Employment Policies Institute, December 6, 2005.

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