Earnings rose, but not at the cost of employment.
The biggest argument against raising the minimum wage is that it’s going to end up cutting jobs. By having to pay each worker extra, the cost of producing goods or services will increase. So, the argument goes, employers will either pass that cost off to customers (by raising prices) or try to find savings elsewhere (by investing in equipment rather than workers, or reducing the hours their employees work). Either way, the total demand for labor will drop.
But this explanation is based on a pretty simplistic, static conception of the labor force. And other economic models have offered alternate conclusions. “The ultimate test,” of whether it helps or hurts, however, “is not theoretical conjecture, but evidence,” writes David Neumark of the San Francisco Federal Reserve. And the folks over at the The Center for Economic and Policy Research have provided just that.
They recently summarized an analysis by the White House Council of Economic Advisors (CEA) on the effect
Minimum wage increases implemented over the past three years by 18 states and the District of Columbia have also contributed to substantial increases in average wages for workers in low-wage jobs, helping to reverse a pattern of stagnant or falling real wages in the preceding years. Moreover, this has occurred without any sign of an impact on employment or hours worked.
Specifically, the CEA examined economic data from the Bureau of Labor Statistics on workers in the leisure and hospitality industries, who are among the lowest paid in the country. In the states where minimum wage was raised, hourly wages and weekly earnings grew by at least 6.6 percent more than in states without the hikes. Via the report:
Though 2014 saw the beginning of a nationwide acceleration in wage growth, wages rose significantly faster in leisure and hospitality for workers in states that raised their minimum wages compared to those that did not.
At the same time, patterns in employment levels in these states remained similar to ones without the federal minimum wage hike, and also to the private sector overall:
When it comes to reducing poverty, opponents of safety net programs are fond of arguing that food stamps and other such initiatives de-incentivize hard work (despite evidence to the contrary). But what’s interesting is that often the same group rails against a higher minimum wage, which as the above analysis shows, can help workers get more for the hours they put it, actually incentivizing work without harming local economies. With an incoming labor secretary who opposes higher minimum wage, the local pushes to raise minimum wages may be met with even more hostility. In that context, the findings of the above analysis are particularly pertinent.