The One Million Job Disaster

Senate Democrats are planning a vote in the first part of 2014 on a bill that would raise the federal minimum wage by nearly 40 percent from $7.25 an hour to $10.10 an hour. The New York Times and Associated Press  have reported that this push for higher mandated wages is part of a 2014 election-year strategy.

Supporters argue that such a boost will reduce poverty without reducing jobs. But the academic evidence paints a very different picture: According to economists at the Federal Reserve Board and the University of California-Irvine, the majority of empirical research shows that a higher minimum wage reduces employment for the least-skilled, while having little to no effect on poverty rates. Recent research claiming to overturn this consensus has been thoroughly refuted in a study forthcoming in Cornell University’s labor relations journal.

This new analysis from economists at Miami and Trinity University uses updated Census Bureau data from 2012 and 2013 to provide state-level estimates on the number of jobs that would be lost as a result of a $10.10 wage hike. Across all 50 states, the updated analysis shows that at least 360,000 jobs — and as many as 1,084,000 jobs — would be lost. The analysis also describes the family status and income of affected workers, demonstrating why a higher minimum wage is poorly-targeted to help individuals in poverty.

A full-page ad making this point appears today in The New YorTimes:NYTimes_EPI_minwage_final_out

A technical paper describing the methodology for the results below is also available. 

Employment

The economic consensus on the minimum wage is that a 10 percent increase causes a one to three percent drop in employment for affected groups such as teens. Some studies have found larger employment results for young high-school drop outs, in the range of a six percent drop in employment for each 10 percent mandated wage increase.

In the estimates below, we provide a “low” and “high” estimate for job loss, and also includes a mid-range estimate that allows for a larger employment response for young high school drop-outs.

EMPLOYMENT LOSS FROM A $10.10 MINIMUM WAGE

StateLow Estimate (e = .1)High Estimate (e = .3)Mid-Range (e = .2 / .6)Affected Employment
All States   361,506 1,084,518   930,513 23,931,018
Alabama       7,942       23,827     20,061       427,120
Alaska          387         1,162       1,089         33,722
Arizona       5,561       16,682     14,122       434,825
Arkansas       4,869       14,607     12,065       262,505
California     33,339     100,016     82,008    2,704,991
Colorado       3,862       11,586     10,139       316,037
Connecticut       1,507         4,521       3,914       164,974
Delaware       1,163         3,488       3,092         69,504
D.C.          195            585          444         22,118
Florida     16,289       48,866     39,226    1,399,420
Georgia     12,913       38,739     32,324       825,433
Hawaii       1,414         4,241       3,268         96,154
Idaho       2,635         7,906       7,652       142,804
Illinois       9,191       27,572     22,786       875,553
Indiana       9,834       29,502     27,819       555,623
Iowa       5,229       15,687     15,519       276,905
Kansas       4,612       13,835     12,545       259,884
Kentucky       7,132       21,395     17,324       422,317
Louisiana       6,751       20,254     15,774       402,474
Maine       1,706         5,117       4,610       108,078
Maryland       6,082       18,247     15,614       382,633
Massachusetts       4,509       13,526     12,129       386,507
Michigan     12,899       38,698     31,108       797,260
Minnesota       6,506       19,517     19,219       389,282
Mississippi       4,037       12,110     10,038       242,014
Missouri       6,517       19,550     16,345       454,118
Montana       1,008         3,023       2,584         74,162
Nebraska       2,859         8,578       8,407       172,047
Nevada       1,766         5,298       4,391       180,919
New Hampshire       1,444         4,333       4,322         95,457
New Jersey     10,718       32,153     26,825       675,297
New Mexico       2,610         7,830       6,851       168,182
New York     22,975       68,924     57,369    1,455,013
North Carolina     16,176       48,527     40,392       944,154
North Dakota          817         2,451       2,380         52,976
Ohio     10,283       30,848     25,796       790,941
Oklahoma       5,644       16,931     15,747       322,588
Oregon          901         2,702       1,946       161,105
Pennsylvania     16,349       49,048     44,202       935,126
Rhode Island          929         2,787       2,404         71,059
South Carolina       7,314       21,943     19,429       419,856
South Dakota       1,173         3,518       3,306         74,358
Tennessee     10,488       31,463     27,293       567,322
Texas     42,872     128,617   111,530    2,515,717
Utah       3,958       11,873     11,346       252,573
Vermont          208            625          518         28,912
Virginia     10,583       31,750     25,612       607,552
Washington          744         2,233       1,821       207,650
West Virginia       2,599         7,798       6,189       149,364
Wisconsin       9,312       27,937     27,659       512,465
Wyoming          696         2,089       1,960         43,968

Family Status and Family Income

Twenty eight states increased their minimum wages between 2003 and 2007, prior to the last federal minimum wage increase. Economists from Cornell and American University, who studied data from that period, found no associated reduction in poverty rates. Poor targeting helps explain the disappointing result: Nearly 60 percent of the working-age poor don’t work and thus aren’t affected by a minimum wage increase. (Similarly, many other poor individuals already earn considerably more than the minimum wage, but are in poverty for other reasons such as lack of work hours.)

The targeting problem extends further to those who do earn the minimum wage and are affected by an increase. As the data below demonstrate, many minimum wage earners either live at home with family or are in a household where they aren’t the primary earner. For instance, nearly 60 percent of employees affected by $10.10 either live with family or relatives, or are second-earners in a married couple. As a result, their average family income ($54,445) is considerably higher than the full-time minimum would suggest.

 FAMILY STATUS OF AFFECTED EMPLOYEES, $10.10 MINIMUM WAGE

Single AdultSingle ParentMarried, Sole EarnerMarried, Dual EarnerLiving w/ Family, Relative, Sub-Family
All States22.05%8.84%9.37%20.55%39.19%

  AVERAGE FAMILY INCOME OF AFFECTED EMPLOYEES, $10.10 MINIMUM WAGE

StateMean
All States$54,445
Alabama$50,206
Alaska$73,065
Arizona$52,445
Arkansas$42,147
California$52,852
Colorado$58,810
Connecticut$80,125
Delaware$57,104
D.C.$58,634
Florida$49,475
Georgia$47,661
Hawaii$65,644
Idaho$47,161
Illinois$60,631
Indiana$54,255
Iowa$54,260
Kansas$48,666
Kentucky$43,513
Louisiana$44,528
Maine$56,170
Maryland$73,995
Massachusetts$76,683
Michigan$61,866
Minnesota$61,006
Mississippi$45,151
Missouri$56,268
Montana$40,270
Nebraska$49,751
Nevada$48,993
New Hampshire$81,571
New Jersey$74,552
New Mexico$52,692
New York$63,120
North Carolina$44,554
North Dakota$59,701
Ohio$53,882
Oklahoma$45,509
Oregon$43,672
Pennsylvania$60,720
Rhode Island$66,839
South Carolina$44,737
South Dakota$46,915
Tennessee$42,972
Texas$47,571
Utah$57,740
Vermont$56,364
Virginia$63,158
Washington$59,055
West Virginia$47,013
Wisconsin$58,812
Wyoming$46,648

Better Alternatives

Economists and politicians in both parties have strongly supported alternatives to raising the minimum wage such as the Earned Income Tax Credit. It’s an income boost that operates through the tax code instead of through a mandate on employers, so it doesn’t have the same negative employment consequences as a minimum wage increase. It’s better-targeted to poor families, and research shows it can actually boost employment for groups such as single mothers since earned income is required to receive it.

Because of the EITC, the minimum wage for a single parent is already above $9 or even $10 an hour, depending on the state they live in. The EITC could be improved even further on the federal level by increasing the benefit level for childless adults. Additionally, more states could choose to provide a supplement to the federal credit. Unlike a higher minimum wage, these options would actually have a measurable impact on the well-being of low-income families.