The Effects of Minimum Wages on Employment David Neumark The minimum wage has gained momentum among policymakers as a way to alleviate rising wage and income inequality. Much of the debate over this policy centers on whether raising the minimum wage causes job loss, as well as the potential magnitude of those losses. Recent research shows conflicting evidence on both sides of the issue. In general, the evidence suggests that it is appropriate to weigh the cost of potential job losses from a higher minimum wage against the benefits of wage increases for other workers.
Calls for minimum wage increases—at the federal, state, and local levels—are based on the premise that rises in the minimum wage will improve the economic well-being of low-paid workers.
This has become an important policy prescription in movements to combat poverty.
One area of focus in the debate is whether a minimum wage increase would actually affect many workers. Some skeptics have argued that only a very small share of workers actually receive the minimum wage, and furthermore, that many of those workers are not struggling adults, but rather teenagers from affluent families.
Understanding the magnitude of the impact of a federal or state-level minimum wage increase on workers is an important first step in informing the policy debate. The argument that only a small share of workers is actually paid the minimum wage misses a key point: In addition to this broader scope of the workforce, economist Arin Dube of the University of Massachusetts-Amherst points out that a shrinking share of low-wage workers is comprised of teenagers.
For the purpose of this analysis, we set aside the important issue of potential employment effects, which is another crucial element in the debate about an optimal minimum wage policy. The Ripple Effects Of Minimum Wage Policy Although relatively few workers report wages exactly equal to or below the minimum wage, a much larger share of workers in the United States earns wages near the minimum wage.
This holds true in the states that comply with the federal minimum wage, in addition to those states that have instituted their own higher minimum wage levels. This ripple effect occurs when a raise in the minimum wage increases the wage received by workers earning slightly above the minimum wage.
This effect of the statutory minimum wage on wages paid at the low end of the wage distribution more generally is well recognized in the academic literature. Based on this recognition, we quantify the number of workers potentially affected by minimum wage policy using the assumption that workers earning up to percent of the minimum wage would see a wage increase from a higher minimum wage.
We hasten to note that a complete analysis of the net effects of a minimum wage increase would also have to account for potential negative employment effects. Our main goal of this empirical exercise is to dispel the notion that the minimum wage is not a relevant policy lever, which is based on the faulty premise that only a small number of workers would be affected.
Using data from the Bureau of Labor Statistics, combined with information on the binding minimum wage in each state, we are able to calculate these shares. Furthermore, the hours worked by this group represent nearly one-quarter— In these states adhering to the federal floor, 3.
The Ripple Effect by State States have the opportunity to set a minimum wage above the federal floor. In these states, 3.
Overall, up to Indeed, every state in the country has a substantial share of workers who would be impacted by an increase in the minimum wage in that state, as seen in figure 1 below. InMontana had the highest share of workers— Even in Alaska, which boasts higher wages compared to the rest of the country, In the high-population state of California, 4.For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below): A “$ option” would increase the federal minimum wage from its current rate of $ per hour to $ per hour in three steps—in , , and Jul 27, · In many states, particularly those governed by Republicans in the South and the Midwest, there is little chance of raising the minimum wage above the federal level, which has stood at $ since.
The minimum wage would rise (in three steps, starting in ) to $ by July 1, , and then be indexed to inflation. b.
|The "Ripple Effect" of a Minimum Wage Increase on American Workers | The Hamilton Project||Others are raising wages above the federally mandated rate, according to the National Conference of State Legislators. The changes come after years of national debate about the need to raise pay so families can earn a living wage.|
|Whenever increasing the minimum wage is discussed, there is always concern that doing so might hurt job growth or imperil businesses that employ low-wage workers. In the 22 times the federal minimum wage has been raised, and the over times that states or localities have raised their minimum wages just since thethese concerns have never materialized.|
|Federal Reserve Bank of San Francisco | The Effects of Minimum Wages on Employment||Even with the low unemployment rates that have prevailed since the late s, the U.|
The minimum wage would rise (in two steps, starting in ) to $ by July 1, , and would not be subsequently indexed to.
The minimum wage fails to reduce net poverty because of its adverse effects on employment and poor ability to target workers living in households below the poverty threshold.”. The Ripple Effects of Minimum Wage Policy Although relatively few workers report wages exactly equal to (or below) the minimum wage, a much larger share of workers in the United States earns wages.
In the minimum-wage debate, much depends on framing and assumptions, as well as one’s interpretation of the larger patterns of increasing wage inequality in the United States.
Jul 27, · In many states, particularly those governed by Republicans in the South and the Midwest, there is little chance of raising the minimum wage above the federal level, which has stood at $ since. The minimum wage would rise (in three steps, starting in ) to $ by July 1, , and then be indexed to inflation. b. The minimum wage would rise (in two steps, starting in ) to $ by July 1, , and would not be subsequently indexed to. This holds true in the states that comply with the federal minimum wage, in addition to those states that have instituted their own higher minimum wage levels. An increase in the minimum wage tends to have a “ripple effect” on other workers earning wages near that threshold.