Hikes in the minimum wage have other effects besides just giving low-income workers a raise. Important new research suggests that minimum wage increases in the late 2000s resulted in the loss of some 1.4 million American jobs and hurt unskilled workers most of all.
A new study by researchers Jeffrey Clemens and Michael Wither from the University of California San Diego found that low-skilled workers were the most adversely affected by minimum wage increases, despite the fact that this was the group that such legislation sought to help.
The study shows that between July 23, 2007 and July 24, 2009, the federal minimum wage rose from $5.15 to $7.25 per hour. During this period, the employment-to-population ratio declined substantially–by 4 percentage points among adults aged 25 to 54, and by 8 percentage points among those aged 15 to 24.
Up to now, economists have disagreed as to the part that the federal minimum wage increases played in unemployment, but the new methodology employed carefully delineated control groups to isolate the variable of minimum wage in order to determine its precise effects.
For example, the researchers were able to compare the effects of the wage hikes in states directly affected by hikes and compare them to what happened in states whose minimum wage was already higher than the federal level, and thus were unaffected by the change.
The scholars also compared data between low-skilled workers whose wages were directly targeted by the new federal minimum and those whose wages were moderately above. They investigated the effects of recent federal minimum wage increases on both the employment and income trajectories of low-skilled workers.
The conclusion of the 70-page study is that the minimum wage increases “reduced working-age adults’ employment-to-population ratio by 0.7 percentage point” for the period from December 2006 to December 2012. “This accounts for 14 percent of the total decline over the relevant time period,” or approximately 1.4 million workers.
The study also found that “binding minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings.”
Thankfully, tampering with the minimum wage isn’t the only way to assist the income of low-skilled workers. After presenting the results of minimum wage increases, the study compares the effects of the minimum wage with research on the Earned Income Tax Credit (EITC), an alternative policy for increasing the incomes of low-skilled workers.
The EITC targets only the poor, eliminating others such as teenagers from middle-class families who happen to hold minimum-wage jobs. Unlike the minimum wage, the EITC “has been found to significantly increase the employment and incomes of low-skilled workers, reduce inequality, and reduce tax-inclusive measures of poverty,” the researchers maintain.
Last week, the Service Employees International Union (SEIU) staged protests across the country demanding higher minimum wages, and President Obama backed a 40% increase in the federal minimum wage earlier this year, setting a target of $10/hour. The new research should give well-intentioned legislators pause before entertaining bills that would ultimately hurt low-skilled workers.
Follow Thomas D. Williams on Twitter @tdwilliamsrome
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