by Clark Merrefield
An ongoing subject of debate among some labor economists is how raising the federal minimum wage would affect employment. Research shows raising the federal minimum wage to $15 an hour would increase earnings for millions of low-wage workers. A higher minimum wage would also have some effect on employment, according to the 17 academic studies and other research surveyed below. Most analyses have found overall small employment effects, but Congressional Budget Office analyses suggest the potential for, though not the certainty of, relatively large job losses.
A February 2021 CBO analysis [PDF] of the proposed $15 wage hike suggests it could lead to 1.4 million fewer jobs and an increase to the budget deficit of $54 billion from 2021 to 2031. In 2018, the CBO estimated a $1.9 trillion budget hit over 10 years from the 2017 federal tax cuts. A recent policy brief from University of California, Berkeley economist Michael Reich, by contrast, estimates that raising the federal minimum wage to $15 an hour would add $65 billion to government coffers, from increased tax revenue and reduced federal safety net expenses. The CBO analysis estimates a one-third chance of zero to 1 million jobs lost and one-third chance that 1 and 2.7 million jobs could be lost, while the number of people in poverty would fall by 900,000.
While those earning the current federal minimum of $7.25 would more than double their wages with a $15 federal minimum, there would likewise be some degree of job loss at this lower end of the wage spectrum. Some research suggests job losses would hit teenagers hardest, and not all economists are convinced that raising the minimum wage is the best way to help the working poor.
A 2018 analysis [PDF] from the Bureau of Labor Statistics found about 8% of teenagers aged 16 to 19 earned the federal minimum or less, with 1% percent of workers aged 25 and up earning the federal minimum. The analysis, based on hourly wages workers reported, doesn’t include overtime, tips or commissions. Roughly 29 million people of all ages, representing a quarter of the full-time, year-round workforce, had annual earnings in 2018 equal to less than $15 an hour, according to the Current Population Survey Annual Social and Economic Supplement from the U.S. Census Bureau.
The federal floor hasn’t budged from $7.25 an hour in more than a decade, but states and cities can set their own minimum wage. Many states around the country have already raised their minimums above the federal level. New York’s minimum wage, for example, stands at $12.50 an hour for most jobs outside New York City, where the minimum is $15 an hour for businesses with more than 11 employees. Washington has one of the highest cash wage minimums for tipped workers at $13.69 an hour.
The University of California, Berkeley Labor Center maintains a database of municipalities with minimum wage ordinances. Emeryville, California, a small town north of Oakland that’s home to the animation studio Pixar, has among the highest minimum wages in the country at $16.84 per hour. The federal minimum is the floor for many states in the south. Louisiana and South Carolina have the highest percentage of workers making at or below the federal hourly minimum, [PDF] according to BLS.
The Federal Minimum Wage: Formative Findings
Academic studies that explore minimum wage changes tend to look at how those changes affect employment levels. There are hundreds of studies on this. Many look at how raising the minimum wage would affect teen employment, since teenagers tend to work in low-wage jobs likely to be affected by minimum wages.
One of the most famous minimum wage studies first appeared as an October 1993 National Bureau of Economic Research working paper [PDF] from Princeton University economists David Card and the late Alan Krueger. (It was published as a peer-reviewed paper in 1994 in the American Economic Review.) This paper compared employment effects in New Jersey and Pennsylvania after New Jersey raised its minimum wage in 1992 while Pennsylvania’s held steady. Low-wage fast food jobs grew 13% more in New Jersey than in Pennsylvania, they found. Prices also went up at the New Jersey-based fast food establishments, “suggesting that much of the burden of the minimum wage rise was passed on to consumers,” according to the paper.
Before Card and Krueger, common economic knowledge assumed raising the minimum wage would lower employment. But the strength of that relationship has been and remains a subject of great debate. A survey of economic research in the Journal of Economic Literature, published in 1982, found many studies concluded that each 10% increase in the federal minimum wage lowers teenage employment by about 1%. Toward the end of the 1980s — a decade in which the federal minimum wage plateaued at $3.35 — one of the authors of that 1982 paper, Charles Brown, was a bit less convinced. He wrote in the Journal of Economic Perspectives in 1988 that “the effects of the minimum wage on employment are smaller than I would have supposed.”
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.” A 2015 study [PDF] in the Journal of Human Resources doesn’t point to a sudden drop in employment following state-level minimum wage increases from 1975 to 2012, but rather suggests slower job growth over ensuing years following minimum wage hikes.
Research from New York Federal Reserve economists from September 2019 echoes Card and Kreuger’s original work. That research compared retail and hospitality jobs, like fast-food service, in 19 counties along the New York-Pennsylvania border. New York began raising its minimum wage in 2014, while Pennsylvania’s has remained at the federal floor. Non-tipped fast food workers in New York were making $12.75 an hour by the end of 2018 and will make $13.75 by the end of this year — compared with the $7.25 an hour fast food workers in Pennsylvania make. Hospitality job earnings have risen in the New York counties compared with Pennsylvania, with no change in employment. Employment in the retail sector shrunk at a similar rate in both states, despite rising wages in New York.
In a comprehensive study from July 2019, the Congressional Budget Office [PDF] estimated that raising the federal minimum wage by a smaller amount would have few employment effects, but would also raise wages for far fewer workers. A $10 federal minimum wage would raise wages for 1.5 million workers with “little effect on employment in an average week in 2025,” according to the study. The $15-per-hour option would increase wages for 17 million workers, but the CBO is less certain about the job effects. Their median estimate is that 1.3 million workers would lose their jobs — a less than 1 percent decrease in employed workers, according to the report. The range of job loss from the $15-per-hour option is quite large, from none to millions. The CBO estimates “a two-thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers.”
The CBO offers an interactive calculator — based on its analysis — that shows how different levels of minimum wage increases might affect jobs.
A federal minimum wage increase to $12 could lift 6.6 million people out of poverty, reducing the poverty rate by 2.45 percentage points, according to a 2017 Institute of Labor Economics discussion paper by University of Massachusetts Amherst economist Arindrajit Dube. Price hikes would be small compared with financial gains for those earning the least, Dube found.
Not all economists are convinced raising the minimum wage is the best way to help the working poor. San Diego State economist Joseph Sabia and Cornell University economist Richard Burkhauser [PDF] 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.
Minimum Wages and Racial Inequality
Ellora Derenoncourt and Claire Montialoux. The Quarterly Journal of Economics, February 2021.
The gist: “The 1967 extension of the minimum wage can explain more than 20% of the reduction in the racial earnings and income gap during the civil rights era. Our findings shed new light on the dynamics of labor market inequality in the United States and suggest that minimum wage policy can play a critical role in reducing racial economic disparities.”
Minimum Wage Employment Effects and Labor Market Concentration
José Azar, Emiliano Huet-Vaughn, Ioana Marinescu, Bledi Taska and Till von Wachter. NBER working paper, July 2019.
The gist: “While increases in the minimum wage are found to significantly decrease employment of workers in low concentration markets, minimum wage-induced employment changes become less negative as labor concentration increases, and are even estimated to be positive in the most highly concentrated markets.”
Minimum Wage Increase and Firm Productivity: Evidence from the Restaurant Industry
Hong Soon Kim, SooCheong Jang. Tourism Management, April 2019.
The gist: “The results revealed that increasing the federal minimum wage immediately enhances restaurant productivity for up to two years.”
The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns
David Neumark. NBER working paper, [PDF] revised November 2018.
The gist: “There is a great deal of uncertainty about the employment effects of a $15 minimum wage. One thing we do know is that it would impact far more workers than the current minimum wage, especially in lower-wage states and lower-wage areas of most states.”
People versus Machines: The Impact of Minimum Wages on Automatable Jobs
Grace Lordon and David Neumark. NBER working paper, [PDF] revised January 2018.
The gist: “The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.”
Minimum Wage Shocks, Employment Flows, and Labor Market Frictions
Arindrajit Dube, T. William Lester and Michael Reich. Journal of Labor Economics, July 2016.
The gist: “Minimum wage increases over the past decade appear to have substantially reduced turnover and increased job stability, with small effects on overall employment levels for highly affected groups, such as teens.”
Clark Merrefield is the senior economics editor at The Journalist’s Resource where he has worked since 2019.