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New Evidence of the Minimum Wage Doing What It’s Supposed to Do: Help Low-Wage Workers

Recent wage growth has been best in states where minimums were raised

The analysis underscores what by now should be a pretty simple intuition: Lifting wages.... lifts wages. (Photo: via TalkPoverty.org)

Among the many important charts that wage analyst extraordinaire Elise Gould has in her latest update on U.S. wage trends, the one below is especially revealing. It shows the increase in real hourly earnings for low-wage workers, those at the 10th percentile of the wage scale (meaning 90 percent earn more; 10 percent earn less) broken down by gender and by states that raised or didn’t raise their minimum wage at any time between 2013 to 2017.

minwgst.png&w=1484

A little background. The federal minimum wage has been stuck at $7.25 since 2010, so more than half the states have acted on their own to raise their wage floor (many cities have done so too). Gould reports that a bunch of states, listed under the figure, raised their minimum wages over these years. Some did so due to legislation, either new or a phase-in of an already legislated increase; others did so because they index their wage floor to inflation (which should be, but isn’t, the law of the land; the real value of the federal minimum is constantly being eroded by inflation).

The figure makes two important points. First, as you might expect, real low pay grew more than twice as fast in states that rose their minimum wages, about 5 percent versus 2 percent. Second, the gains are larger for women than men. That’s consistent with research by the Economic Policy Institute showing that minimum wage increases tend to reach more women than men, simply because women are more likely to earn low wages. Minimum wage analyst David Cooper finds that 56 percent of the beneficiaries of a hike in the federal wage floor to $15 by 2024 would be women.

Then there’s this third point shown in the table below. With the help of Lexin Cai, I looked at the growth of employment, both overall and in three low-wage sectors (retail, leisure/hospitality, and food services, a subset of leisure), along with the decline in unemployment in these two sets of states. The reason for this bit of analysis is that some might claim that the wage gains in the states that raised their minimums came at the expense of jobs in those states. At least from this aggregate level, that’s not so. Both overall and in the lower-wage sectors, job growth was slightly faster in states that raised their wage floors and unemployment fell a bit more.

minwgtbl.png&w=1484Much more careful statistical work corroborates this result, most notably this innovative approach from a recent paper by four high-octane minimum wage researchers (Cengiz, Dube, Linder, Zipperer). While there’s a bit of math in the paper, the approach is simple: use the many state increases in their wage floors as a sort of natural experiment to look at the change in jobs right around the old and new minimum wages. If these minimum wage hikes kill jobs, then the number of jobs right at or above the new minimum should be lower than those at or slightly above the old floor. In fact, the researchers find that jobs largely just shift from around the old wage to around the new wage.

The analysis underscores what by now should be a pretty simple intuition. After all, states and cities have been raising their minimums for literally decades by now. If these moves lead to the widespread job losses opponents still claim, we’d know it. In fact, most increases don’t displace most workers; they just raise their pay, as intended.

That’s not to say no one ever loses a job or hours of work due to higher wage floors. Nor is it to say that a minimum wage of any level could be handily absorbed, even in low-wage states. But any debate over this policy should be informed by results like the ones shown here, and should ignore claims that the policy generates nothing but negative, unintended consequences.

To the contrary, it’s a proven way to boost low wages, thereby helping to reconnect the economic fates of low-wage workers to that of the growing economy, a connection that’s been severed by decades of inequality and diminished bargaining power for those who depend on their paychecks as opposed to their stock portfolios. Viewed in this light, higher minimum wages are an essential part of the economic rebalancing that must occur.

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Jared Bernstein

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities and previously served as an economic advisor to the Obama administration.

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