Minimum Wage Maximum Unemployment

Study: Low-level workers put out by wage hikes

December 10, 2014

Minimum wage hikes hurt the people that politicians claim to help, according to a new study.

University of California at San Diego professors Jeffrey Clemens and Michael Wither found that the $7.25 minimum wage passed in 2007 contributed to job losses for entry level and low-skilled workers. The wages may have been high on paper, but the take home pay for workers fell during the first three years of the new wage.

"We find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers," the study says.

Clemens and Wither analyzed employment statistics provided by the National Bureau of Economic Research. They compared the earnings power of minimum wage workers with other people who earned slightly above the minimum wage, as well as the effects of the policy at the state level. People at the bottom end of earnings lost out on hundreds in potential earnings, while those with earnings just above minimum wage held steady.

"We find that this period’s binding minimum wage increases reduced low-skilled individuals’ average monthly incomes. Relative to low-skilled workers in unbound states, targeted workers’ average incomes fell by $100 over the first year and by an additional $50 over the following 2 years. While surprising at first glance, we show that the short-run estimate follows directly from our estimated effects on employment and the likelihood of working without pay. The medium-run estimate reflects additional contributions from lost wage growth associated with lost experience," the study says.

Workers displaced by the minimum wage hike were more likely than their peers to take unpaid internships, if they were able to find any work at all.

"We find that increases in the minimum wage significantly reduced the employment of low-skilled workers. By the second year following the $7.25 minimum’s implementation, we estimate that targeted workers’ employment rates had fallen by 6 percentage points (8 percent) more in bound states than in unbound states," the report says. "Binding minimum wage increases resulted in an increase in the probability that targeted individuals work without pay, perhaps in internships, by 2 percentage points."

Michael Saltsman, research director at the Employment Policies Institute, said that the new study confirms the consensus among labor experts and economists that driving up labor costs contributes to unemployment. He said that President Obama should take note of these findings as he contemplates a 40 percent wage hike that the non-partisan Congressional Budget Office estimates will eliminate up to 1 million jobs.

"With the most recent jobs report suggesting that wages are rising even in the service industry, the last thing we should be doing is considering a wage hike that evidence shows could reduce employees’ incomes," he said.

Published under: Minimum Wage