New Research: Wage Hikes Harm Employees’ Job Prospects and Income Growth

Wednesday, December 10, 2014, 2:56 pm

Politicians like to say that “America needs a raise.” That might be true, but new research suggests that raising the minimum wage is not the best way to give them one.

Researchers at the University of California-San Diego studied the effects of the 40 percent federal minimum wage increase that took place between 2007 and 2009, with a specific focus on targeted employees in states more-affected by the three-step wage hike.

They found that the minimum wage increases had “significant, negative effects on the employment and income growth of targeted workers” relative those in less-affected states. For instance, the researchers conclude that the wage hikes reduced the national employment-to-population ratio by 0.7 of a percentage point, or 14 percent of the total employment decline over a period that included the Great Recession.

Because of these employment consequences and other factors, the average monthly income of targeted employees fell by roughly $100 in relative terms after the three-step wage hike was phased in. The authors explain: “[The] lost income reflects contributions from employment declines, increased probabilities of working without pay… and lost wage growth associated with reductions in experience accumulation.”

Such findings stand in stark contrast to claims made by labor-backed groups like the National Employee Law Project that “a raise in the minimum wage puts money into the pockets of low-income consumers.” According to the UC researchers, whose conclusions are in line with the vast majority of economic research, a minimum wage increase may do the exact opposite