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.
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|
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|
AVERAGE FAMILY INCOME OF AFFECTED EMPLOYEES, $10.10 MINIMUM WAGE
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.