Minimum wage hikes don't eliminate jobs

Dec 02, 2010 By Kathleen Maclay
The economic growth in the 17 states that (as of 2005) had a minimum wage level above the federal level was roughly the same as in the other states. The dotted line represents the 17 states and the solid line charts the others.

Increasing the minimum wage does not lead to the short- or long-term loss of low paying jobs, according to a new study co-authored by UC Berkeley economics professor Michael Reich and published in the November issue of the journal The Review of Economics and Statistics.

The study resolves the often conflicting research on the minimum wage in the United States and may provide guidance in future on the topic, said Reich, who is also the director of UC Berkeley's Institute for Research on Labor and Employment.

While the study focused on restaurant workers, he and his research colleagues reported evidence that their findings apply to workers in other low-wage industries as well.

"This is one of the best and most convincing minimum wage papers in recent years," said Lawrence Katz, an economics professor at Harvard University and a specialist in .

The black areas on the map above reflect the locations of contiguous border pairs of counties in the United States that reported a minimum wage differential between 1990 and 2006.

Much economic policy discussion today is more focused on a general lack of jobs rather than on inadequate pay, said Reich, but that doesn't negate the need for adequate or "living'" wages.

Although increasing the minimum wage can stimulate the economy by putting more money in the pockets of those most likely to spend it on necessities, he said, suggestions to raise minimum wages typically trigger fears. These fears center around the idea that raising the minimum wage would force many employers to reduce job offerings to meet a more expensive payroll, or that a "tipping point" where the minimum wage becomes too high has already been reached.

Reich noted that the federal minimum wage was first adopted as part of the Fair Labor Standards Act of 1938, in the midst of the devastating . More than 87 years later, the federal minimum wage of $7.25 an hour provides a full-time worker an annual salary of approximately $14,500 a year. Over 32 states plus the District of Columbia have had minimum wages higher than the federal level. Washington state's is the highest at $8.55 per hour, and San Francisco has a citywide minimum wage that is about to increase to $9.92 per hour.

"It seems likely that we will have a number of state minimum wage campaigns next year, with more in 2012," Reich said. "Bill Clinton was able to get a Republican House of Representatives to pass a federal increase in 1996 – that could happen again."

Reich's co-authors included Arindrajit Dube, an assistant economics professor at the University of Massachusetts, Amherst, and a research associate at Amherst's Political Economy Research Institute, and T. William Lester of the University of North Carolina at Chapel Hill, an assistant professor at UC Berkeley's City and Regional Planning specializing in economic development. They said their findings indicate that an entire generation of previous minimum wage studies that found negative effects on jobs is fundamentally flawed.

The two sets of minimum wage studies cited most often in debates about raising the minimum wage reach different conclusions. One group of researchers relied on local case studies and the other on national level data and state variation over time.

The main problems, said the authors of the new study, are that the case study research could not be generalized to other areas and covered very short time periods, while the other research approach failed to account for critical differences in employment growth between minimum wage and non-minimum wage states that are unrelated to the minimum wage.

"Our reading of the literature suggests that this difference in methods may account for much of the difference in results," the researchers wrote.

For example, they said in the article, both minimum wages and overall employment growth vary substantially over time and location, as seen in the South, where the economy has been growing faster than it has in the rest of the country for reasons unrelated to the South's lack of state-based minimum wages.

The article noted that 17 states and the District of Columbia had a minimum wage higher than the federal level in 2005 and consistently lower job growth than the rest of the country from 1991 to 1996. However, those 17 states and states on the other end of the minimum wage spectrum experienced almost identical job growth between 1996 and 2006.

For their paper, "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Reich, Dube and Lester built upon the earlier studies, pulling together local and national level data covering 16 years.

They crunched data from across the country on county pairs that straddle state borders and have a minimum wage differential, examining differences between the pairs in terms of the number of jobs and pay for workers in restaurants, retail, accommodation and food services.

The researchers used data supplied by the Quarterly Census of Employment for 66 quarters from 1990 to 2006. They merged this data with information on the local, state and federal minimum wage in effect during each quarter.

About 33 percent of restaurant workers across the country are paid no more than 10 percent above the minimum wage. Restaurant and retail workers together account for almost half of all employees in the United States who are paid within 10 percent of the federal or state .

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More information: The new study is available online .

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ArtflDgr
2.3 / 5 (6) Dec 02, 2010
They didnt count the jobs that were lost to china bcausze theyare too expensive to do here...

rproulx45
4 / 5 (4) Dec 02, 2010
Well, it certainly does increase prices.
Thrasymachus
2.2 / 5 (13) Dec 02, 2010
Those jobs are wholly unaffected by the minimum wage. Read the freaking article. Restaurant and retail workers account for almost half the workers who are paid within 10% of the minimum wage. Good luck outsourcing your server's job to India or China. The manufacturing and tech jobs that were outsourced were moderately high-skilled jobs that paid well above the minimum wage. Raising the minimum wage by a quarter every 5 years has no effect on the numbers of those sorts of jobs.
El_Nose
2.6 / 5 (5) Dec 02, 2010
Many people do not realize that increasing minimum wage costs a business more than simply paying $x.xx per hour.

Businesses of over xx people have to offer health care for everyone so there is incentive to stay small unless you are gonna grow really big

businesses have to pay Social security tax on each employee -- but doesn;t that come out of my paycheck? - yes, but they can only force you to pay 1/2 of that tax, they have to pay the other half, and that is not considered part of your wage by the government but it actaully is an expense per hire

and then there are operating taxes -- yes, there is a tax on just being a business , then a tax on the income the business makes ....

businesses are hard to make profitable in this country because you are taxed really really hard -- and our business taxes are less than most of europes
El_Nose
3.7 / 5 (3) Dec 02, 2010
hey --

servers across most of the country make $2.13 per hour. That means that they HAVE to survive on tips. Why do they get paid 2.13 per hour -- it mandated because that amount is assumed to be very close to what they would pay in taxes on their tips, so they do not recieve a check if they claim all their tips. So they get paid 2.13 just to go directly to taxes? YES and the business still has to pony up Social security taxes for each employee

they consider TIPS as part of their salary so they say servers are within 10% of minimum wage -- but is this true when if no one walks into the resturaunt they make 2.13 an hour
Thrasymachus
1.9 / 5 (13) Dec 02, 2010
Businesses of over xx people have to offer health care for everyone so there is incentive to stay small unless you are gonna grow really big
False. No business is forced to provide benefits. Look at Wal-Mart. More employees than the U.S. armed forces, but they don't give you healthcare just for working for them.

businesses have to pay Social security tax on each employee -- b... but it actaully is an expense per hire
False. The payroll tax is just that, a tax on payroll. Your employer pays the other half of the ~14% you get paid.

I'll agree the tax burden is grossly out of whack, but that's largely because the most successful businesses get out of paying the lion's share of their taxes, while the unsuccessful ones have no such luxury.
ArtflDgr
1 / 5 (2) Dec 02, 2010
ArtflDgr
2.5 / 5 (8) Dec 02, 2010
False. The payroll tax is just that, a tax on payroll. Your employer pays the other half of the ~14% you get paid.

ONLY economic illiterates think you can tax a company!!!! oh, you CAN take money from it, but since its a legal convenience the ACTual money comes from the productivity of the workers.

and only someone who has no idea how this works takes a position of eruditious ignorance.

if the employees work is not worth the salary, pluse extra monies that have to come from their owrk or someone elses, then a company dont hire them...

tax a gasoline company, and they PASS THE COST TO YOU
tax a canning company, and they PASS THE COST TO YOU
etc

taxing companies is a way to tax poor people who buy the products they need and have no choice.
Thrasymachus
2 / 5 (12) Dec 02, 2010
Now there's an ideological response for you.
freethinking
2.1 / 5 (7) Dec 02, 2010
Since the governmenet thinks that minimum wage is the minimum needed to live, how about everyone in government gets paid minimum wage, instead of above industry average wages, with superior than industry average benefits.

People who haven't owned a business needs too so they can learn how government hurts the economy and wages.

I spend a whole lot of money, time and effort just reporting to the government. Time money and effort better spent growing my business so I can employ more people.

Too many people who post here are ignorant progressives that have never owned a business.
marjon
2.1 / 5 (7) Dec 02, 2010
Then let's raise the minimum wage to $100/hr.
freethinking
1.7 / 5 (6) Dec 02, 2010
Marjon, are you saying hard working students, dishwashers, and other assorted grunts (no offence intended.... I was a grunt) deserve to be paid as much as a government employed unionized desk jocky whose job it is, to the hurt the economy of the nation?
mysticshakra
2.1 / 5 (7) Dec 02, 2010
Good point. Pay the dishwashers $500 an hour.
Jimee
1.8 / 5 (5) Dec 02, 2010
So, let those unfortunates who have chosen to work for $3.50 an hour (free market) starve and die if they want to. Companies can charge what they want (when they get too big to fail), and they can pay whatever they want. We can choose to work or starve, or more likely work AND starve. The rich make enough money to consume whatever we may have wanted, so everything is just great!
marjon
2 / 5 (4) Dec 02, 2010
So, let those unfortunates who have chosen to work for $3.50 an hour

Why would anyone choose to work for $3.50/hr if they starve?
Wait staff I think can be paid below minimum wage because they get tips.
Illegal aliens who work for $3.50 are making more than they can at home.
I would rather have teens working for $3.50/hr instead of playing games at home. They can earn spending money an learn the value of work.
AkiBola
1 / 5 (1) Dec 03, 2010
Let's increase the minimum wage to $50/hour then. Just imagine the economic boom that will create.
freethinking
2 / 5 (4) Dec 03, 2010
Illigal/criminal aliens shouldn't be paid at all. No wages at all for them. Jimee, so you think people can live on minimum wage? Low paying jobs are typically done by students, people doing part time, etc. Those jobs are not meant for living wages. If you think working at McDonalds as a fry slinger is enough, or should be enough, to support a family, your nuts.

I have a few grunt minimum wage jobs at my company. I tell prospective new employees that I dont hire dumb people, and I expect them to use my company as a stepping stone to a better job as I use their skills.

Raising the minimum wage will mean I hire one or two less employees. It will mean one or two less people who will use my company as an education and a stepping stone to a better job. It will actually drop future living earning of someone.
Husky
not rated yet Dec 06, 2010
given themakeup of the minimum wagers group (restaurant workers/retail shopassistents) i would think that for large franchises like Walmart and McDonalds, increases in the minimum wage are not such a big deal, as they have a established solid bussinessmodel/profit, enough clients that buy every day and these companies can buy in their resources/products with huge franchise discounts or straight from china, but I do think that for a small single truckerrestaurant for instance, economic downturns, less truckers to serve, the height of minumumwages is more critical, a more delicate balance. Therefore i would suggest that if these wages rise (wich i am not against, as somebody pointed out, its not something you can support your fammilly from anyway), at least the smaller vulnerable bussinesses are protected by a tax-break, depending on their profits etc.
Husky
not rated yet Dec 06, 2010
the problems managers of large multi-million profit bussiness faces when confronted with slightly higher cost of staff are maybe less bonus on top of their good salary, settle for the mercedes instead of the veyron, thats a luxurous problem wich pales to small bussiness owners and their workers who might be worrying how to pay the rent next month.
El_Nose
not rated yet Dec 06, 2010
very few industries actually give bonuses out side of sales or what is explicitely written into a contract - well in finance you get bonuses because if you are good at what you do then you generate revenue that is A LOT higher than what you need, al while charging less than a penny on the dollar. -- but everyone else it is strictly the highest in the comapny structure that MIGHT get a bonus.
Nederlander
5 / 5 (2) Dec 06, 2010
The advantage of minimum wages is that it forces businesses to innovate to be more efficient. The dutch have a relatively high minimum wage, work an average of 1309 HRS/Year with very low unemployment rates, in the US this is 1777HRS/Year.
marjon
1 / 5 (3) Dec 06, 2010
The advantage of minimum wages is that it forces businesses to innovate to be more efficient. The dutch have a relatively high minimum wage, work an average of 1309 HRS/Year with very low unemployment rates, in the US this is 1777HRS/Year.

Sounds like the Dutch are underemployed.
Skeptic_Heretic
5 / 5 (1) Dec 06, 2010
Since the governmenet thinks that minimum wage is the minimum needed to live, how about everyone in government gets paid minimum wage, instead of above industry average wages, with superior than industry average benefits.

If you'd like to have the kids at McDonalds taking care of your food and product safety, go for it. Or just move to Somalia and stfu.
marjon
2 / 5 (4) Dec 06, 2010
http://www.youtub...N3UIQmEk
Job killing impact of minimum wage laws.
'The minimum wage is nothing but a huge off-the-books tax paid by a small group of people, with all the proceeds paid out as the equivalent of welfare to a different small group of people. If a tax-and-spend program that arbitrary were spelled out explicitly, voters would recoil. How unfortunate that when it is disguised as a minimum wage, not even our Republican president can manage to muster a principled objection. "
http://www.slate....2103486/
Skeptic_Heretic
5 / 5 (1) Dec 06, 2010
Marjon, read the whole article, not the sarcastic preamble.

From your own source:

"In fact, the power of the minimum wage to kill jobs has been greatly overestimated. Nowadays, most labor economists will tell you that that minimum wages have at most a tiny impact on employment."
http://www.slate....2103486/
marjon
1.8 / 5 (5) Dec 06, 2010
Marjon, read the whole article, not the sarcastic preamble.

From your own source:

"In fact, the power of the minimum wage to kill jobs has been greatly overestimated. Nowadays, most labor economists will tell you that that minimum wages have at most a tiny impact on employment."
http://www.slate....2103486/

I did read it. I don't agree with it. But I do agree that the min. wage is a dishonest method of income redistribution, aka socialism.
Skeptic_Heretic
5 / 5 (3) Dec 06, 2010
I did read it. I don't agree with it. But I do agree that the min. wage is a dishonest method of income redistribution, aka socialism.
Then why would you use the sarcastic preamble of a source that disagrees with you?

Quotemining will often make your point entirely invalid, especially if that was your best source.
marjon
2.3 / 5 (3) Dec 06, 2010
Minimum wage laws create jobs for illegal immigrants.
For our Dutch friend, how many people work for cash under the table?

As for the the premise of the article how can uncreated jobs be measured? If I was willing to pay $2/hr for a job, but could not legally do so, I would do it myself or not do it. How is that factored into the statistics?

As for the Slate article above, the author is correct, minimum wage laws are just another way for income redistribution.
For those who have some common sense, minimum wage laws either eliminate existing jobs or prevent the creation of new jobs. Illegal immigrants demonstrate that.
freethinking
1 / 5 (3) Dec 06, 2010
SH - Kids are responsible for food safety. How many kids work at McDonalds, Subway, etc. I worked at a fast food places, and was a lot more concerned than some of the adults working there.

I am very honest with the students I hire at min wage. I tell them that I expect them to use the expereince working at my company to further their careers while I expect a comittment for 6 month to a year where I can use there brains to improve my business.

Raise minimum wage $2-$5 and I won't hire these students. These students will then have less work experience and less future job prospects. I will lose workers and will make less money.

Sorry SH, your lack of real world business experience shows up, how about you go into business?
marjon
1 / 5 (2) Dec 06, 2010
"In actuality, if the minimum wage is increased, what
is more likely is:
.. Few low-paid workers will lose their jobs.
.. But workers who retain their low-paying jobs - and
other workers as well- will likely be worse off as a
consequence of the mandated increase.
II Employers will reduce non-money types of pay -
primarily health insurance or other fringe benefits -
to neutralize the federal mandate.
.. Although few jobs may be lost, far more jobs will
never be created."
http://www.ncpa.o...a204.pdf
"raising minimum wage is a bad thing to do because it does most harm to the least-advantaged among us."
"Productive effort and mutually beneficial exchanges that would have occurred don’t occur. "
http://www.thefre...gration/
And I agree with the article that citizenship or a green card should not be required for employment.
Skeptic_Heretic
not rated yet Dec 06, 2010
I am very honest with the students I hire at min wage. I tell them that I expect them to use the expereince working at my company to further their careers while I expect a comittment for 6 month to a year where I can use there brains to improve my business.
What business do you own and operate? Or is this another lie from the right wing of physorg posters?
I am very honest with the students I hire at min wage. I tell them that I expect them to use the expereince working at my company to further their careers while I expect a comittment for 6 month to a year where I can use there brains to improve my business.
What business do you own and operate? Or is this another lie from the right wing of physorg posters?
Want to make immigration a non-issue? Give illegal immigrants the same "right to work" that citizens have. At that point in time, an oppressive business will have no leg to stand on as their illegal workers can seek the same arbitration that the legal can.