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3,914 28,010 search Raising the Minimum Wage Would Help, Not Hurt, Our Economy SOURCE: AP/Sam Hodgson A Carl's Jr. employee gives a customer their change through a drive- through window in San Diego on Friday, September 13, 2013. By T. William Lester, David Madland, and Jackie Odum | December 3, 2013 PRINT: SHARE: Updated January 2, 2014: This column has been revised to include two new paragraphs that clarify the differences between the methodology used for this analysis and the methodologies employed by the academic papers cited and other similar academic analyses. Raising the minimum wage would be good for our economy. A higher subscribe Subscribe to Labor and Work News Alerts Your email Follow Labor and Work Subscribe to the Labor and Work RSS feed Related Materials Weak Report Underscores Need to Extend Jobless Benefits by Adam Hersh 5 Reasons Congress Must Extend Unemployment Insurance by Sarah Ayres Coming Together on Behalf of Unemployed Americans by Sam Fulwood III Real Family Values: Flexible Work Arrangements and Work- Life Fit by Sarah Jane Glynn and Emily Baxter The Decline of Colorado’s Middle Class by David Madland and Keith Miller Also by T. William Lester ISSUES EXPERTS EVENTS REPORTS PRESS ABOUT US DONATE

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Page 1: Raising the Minimum Wage Would Help, Not Hurt, Our …ams.nyscommunityaction.org/Resources/BestPracticesBlog/Raising the... · Despite these positive benefits, and the sad fact that

3,914 28,010

search

Raising the Minimum Wage WouldHelp, Not Hurt, Our Economy

SOURCE: AP/Sam Hodgson

A Carl's Jr. employee gives a customer their change through a drive-through window in San Diego on Friday, September 13, 2013.

By T. William Lester, David Madland, and Jackie Odum | December 3,

2013

PRINT: SHARE:

Updated January 2, 2014: This column has been revised to include two

new paragraphs that clarify the differences between the methodology

used for this analysis and the methodologies employed by the academic

papers cited and other similar academic analyses.

Raising the minimum wage would be good for our economy. A higher

subscribe

Subscribe to Labor andWork News Alerts

Your email

Follow Labor and Work

Subscribe to the Labor

and Work RSS feed

Related Materials

Weak Report Underscores

Need to Extend Jobless Benefits

by Adam Hersh

5 Reasons Congress Must

Extend Unemployment

Insurance by Sarah Ayres

Coming Together on Behalf of

Unemployed Americans by Sam

Fulwood III

Real Family Values: Flexible

Work Arrangements and Work-

Life Fit by Sarah Jane Glynn and

Emily Baxter

The Decline of Colorado’s

Middle Class by David Madland

and Keith Miller

Also by T. WilliamLester

ISSUES EXPERTS EVENTS REPORTS PRESS ABOUT US

DONATE

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minimum wage not only increases workers’ incomes—which is sorely

needed to boost demand and get the economy going—but it also reduces

turnover, cuts the costs that low-road employers impose on taxpayers,

and pushes businesses toward a high-road, high-human-capital model.

Despite these positive benefits, and the sad fact that the minimum wage

is worth far less today than it was in the late 1960s, with the Senate set

to vote to raise the federal minimum wage from $7.25 to $10.10 per hour,

opponents will likely trot out the same unfounded argument that the

minimum wage reduces employment. And with today’s unemployment

rate stuck above 7 percent, we anticipate these types of arguments to

reach a fevered pitch.

The evidence, however, is clear: Raising the minimum wage does not

have the harmful effects that critics claim.

A significant body of academic research finds that raising the minimum

wage does not result in job losses, even during periods when the

unemployment rate is high. Critics of the minimum wage, however, often

hold on to the claim that raising the minimum wage will lead to job

losses and ultimately hurt the overall economy, exacerbating the problem

of high unemployment. The argument that raising the minimum wage will

increase unemployment is somewhat far-fetched, since the minimum

wage impacts a relatively small share of the overall workforce, which is

itself concentrated in certain industries such as restaurants and

demographic groups such as teenagers.

Nevertheless, we analyzed more than two decades’ worth of minimum-

wage increases in U.S. states and found no clear evidence that the

minimum wage impacts aggregate job creation during periods of high

unemployment.

Our analysis includes every state that saw its effective minimum wage

increase from 1987 through 2012, when the state’s unemployment rate

was at or above the current rate of 7 percent. We then studied changes

in employment in these states over the next year.* We include minimum-

wage increases that occur because of either state or federal action,

though we disaggregate results later.

According to our analysis, the majority of states that raised the minimum

Raising the Minimum Wage

Would Help, Not Hurt, Our

Economy, December 3, 2013

The Facts on Raising the

Minimum Wage When

Unemployment Is High, June

20, 2012

The Facts on Raising the

Minimum Wage When

Unemployment Is High, June

20, 2012

Also by David Madland

The Decline of Colorado’s

Middle Class, December 12,

2013

The Decline of Colorado’s

Middle Class, December 12,

2013

At Our Expense: Federal

Contractors that Harm

Workers Also Shortchange

Taxpayers, December 11, 2013

Also by Jackie Odum

Raising the Minimum Wage

Would Help, Not Hurt, Our

Economy, December 3, 2013

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wage saw a decrease in their unemployment rate over the next year.

There were a total of 91 cases where a state minimum-wage increase

occurred during a period of high unemployment over the past two and a

half decades. In 47 of these cases, the unemployment rate decreased

over the next 12 months, and in 4 other cases the unemployment rate

remained unchanged. In contrast, there were only 40 occurrences where

the unemployment rate increased. That means when a minimum-wage

increase occurred during a period of high unemployment, unemployment

rates actually declined 52 percent of the time. (see Table 1)

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Comparisons to national averages produce similar results. Of the 91

cases of minimum-wage increases during high unemployment, states

saw their unemployment rate fare better than the national unemployment

rate 51 times over the subsequent 12 months. A few states, including

Alabama and Tennessee in 2009, saw their unemployment decrease

much more than the national average. Following the minimum-wage

increase that year, Alabama and Tennessee’s unemployment rates fell by

1.6 percentage points and 1.4 percentage points, respectively, compared

to a decline in the national unemployment rate of only 0.1 percentage

points. To be fair, some states, such as Michigan in 2008, had

significantly worse outcomes than the national average. However, a

majority of states that raised their minimum wage did slightly better than

the national average. Comparing state employment growth to the

national average produced similar results.

Furthermore, a separate analysis of minimum-wage increases that

occurred as a result of federal action versus increases coming from state

action yields nearly identical results. No matter what caused the

increase, more than half of the states that increased their minimum wage

saw their unemployment rates decline or remain unchanged. Ultimately,

from a look at the aggregate data, there is not clear correlation that

minimum-wage increases are associated with harmful changes in

unemployment or job growth.

This basic state-by-state comparison of what happens to unemployment

and/or aggregate employment one year after a minimum-wage increase

—rather than providing conclusive evidence on its own—suggests

instead that one must dig deeper to look for the real causal effects of the

minimum wage. As the data above suggest, there are wide regional

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variations in economic trends across states, for example, Michigan

versus Alabama. These regional growth differentials are unrelated to

minimum-wage policy and are driven rather by deeper structural forces

including decades-long industrial restructuring processes and divergent

population trends, to name a few—all of which may obscure the impact

of minimum-wage changes. Fortunately, there are at least five different

academic papers that utilize a research design that controls for precisely

such regional trends. Specifically, these papers collectively find that an

increase in the minimum wage has no significant effect on employment

levels. Critically, these papers all include in their samples periods of high

unemployment, with unemployment rates ranging from 7 percent to 12.3

percent. These five academic studies also cover different geographical

areas and different time periods, and use a range of methodologies—

from small case studies to large econometric analysis—lending great

credibility to their findings. In addition, they focus on highly impacted

groups such as restaurant workers and/or teenagers, where minimum-

wage increases actually result in wage increases (i.e., they are binding).

(see Figure 1)

Furthermore, the most recent studies are considered significant

improvements over previous studies because of the methodologies

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employed. Specifically, these studies accurately control for confounding

regional trends by either controlling for heterogeneous trends across

Census divisions, or by examining all U.S. counties along state borders

that had different minimum wages. This research design combines the

detailed analysis possible in case studies with the generalizability of a

nationally representative sample. All of the studies came to the same

conclusion: Raising the minimum wage had no effect on employment

levels.

Contrary to most of the rhetoric, the results of these studies are not

surprising because research indicates that raising the minimum wage

boosts demand, increases worker effort, and reduces turnover,

counteracting the higher wage costs.

What’s more, there may be another factor that comes into play even

more during hard times: economic power. Low-wage workers have very

little of it, particularly during periods of high unemployment.

When the economy is doing poorly, employers have less incentive to

raise wages, while workers, especially those making near minimum

wage, have little ability to demand a raise because there is a ready

supply of unemployed labor available to take their job. Even though these

workers likely become more productive—labor productivity has generally

increased over time, and productivity growth during the past two

recessions was especially strong—they have less economic power to

share the gains of their increased productivity. This suggests that during

hard economic times, there is a critical role for government to raise the

minimum wage to ensure that workers are being paid for their economic

contributions.

In short, policymakers should feel confident that raising the minimum

wage would not hurt employment. Instead, it would provide the kind of

boost in consumer demand that our economy sorely needs.

T. William Lester is an assistant professor in the department of city and

regional planning at the University of North Carolina, Chapel Hill. David

Madland is Director of the American Worker Project at the Center for

American Progress Action Fund. Jackie Odum is a Special Assistant at the

Action Fund.

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* Note: Analysis presented in this column is based on changes from the

quarter that the minimum wage occurred to the similar quarter the

following year. Analysis based on the quarter after the minimum wage

occurred produces similar results.

Full citations for academic papers in Figure 1:

Arindrajit Dube, T. William Lester, and Michael Reich, “Minimum Wage

Effects Across State Borders: Estimates Using Contiguous Counties,” The

Review of Economics and Statistics 92 (4) (2010): 945–964.

Arindrajit Dube, T. William Lester, and Michael Reich, “Do Frictions in the

Labor Market? Accessions, Separations and Minimum Wage Effects.”

Working Paper 5811 (IZA Discussion Paper Series, 2011).

David Card and Alan B. Krueger, “Minimum Wages and Employment: A

Case Study of the Fast-Food Industry in New Jersey and Pennsylvania:

Reply,” American Economic Review 90 (5) (2000): 1397–1420.

Lawrence F. Katz and Alan B. Krueger, “The Effect of the Minimum Wage

on the Fast-Food Industry,” Industrial and Labor Relations Review 46 (1)

(1992): 6–21.

Sylvia A. Allegretto, Arindrajit Dube, and Michael Reich, “Do Minimum

Wages Really Reduce Teen Employment? Accounting for Heterogeneity

and Selectivity in State Panel Data,” Industrial Relations 50 (2) (2011):

205–240.

To speak with our experts on this topic, please contact:

Print: Katie Peters (economy, education, health care, gun-violence prevention)

202.741.6285 or [email protected]

Print: Anne Shoup (foreign policy and national security, energy, LGBT issues)

202.481.7146 or [email protected]

Print: Crystal Patterson (immigration)

202.478.6350 or [email protected]

Print: Madeline Meth (women's issues, poverty, Legal Progress)