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

State Low 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 Adult Single Parent Married, Sole Earner Married, Dual Earner Living w/ Family, Relative, Sub-Family
All States 22.05% 8.84% 9.37% 20.55% 39.19%

  AVERAGE FAMILY INCOME OF AFFECTED EMPLOYEES, $10.10 MINIMUM WAGE

State Mean
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.