New Research Finds Minimum Wages Are Still Costing Employees Jobs, Earnings

Pushes to raise minimum wages are popping up across the country – with inflationary increases as high as $19.08 per hour in West Hollywood, CA starting on July 1 and proposals for as much as $30 hourly minimum wages in places like Los Angeles. These efforts are capped by recent high-profile minimum wage battles: New York’s budget battle to raise the state minimum wage to $17 per hour, and Sen. Bernie Sanders’ announcement of his new $17 federal minimum wage bill.

As the new higher wage proposals pile up, the new evidence on how harmful these policies can be is piling up too.

Several new studies have been released this spring with distinctly cautionary conclusions for lawmakers looking to raise minimum wages:

  • In a study by Baylor University economists Garrett Taylor and James West find when observing industries that employ more young, entry-level minimum wage earners, minimum wage hikes cause significant negative impacts on employment. They note that leisure and hospitality industries employ the “highest proportion of minimum wage workers.” Even controlled for sales, personal, and corporate income tax rates, the economists find “negative and significant” impacts of minimum wage hikes on unskilled, entry-level jobs in industries such as Golf Courses and Country Clubs, Fitness and Recreational Sports Centers, and Limited Service Restaurants. They also note that minimum wages have stronger negative effects on employment in rural areas compared to urban areas in various industries.
  • Analysis by the Federal Reserve Bank of Minneapolis found that minimum wage hikes in Minneapolis and St. Paul have increased hourly pay rates, but resulted in lost jobs, fewer hours worked, and lower overall earnings for affected employees. Minimum wage hikes from 2017 through 2021, controlled for effects from the pandemic, cost roughly -1.7% of jobs in Minneapolis and -2.2% of jobs in St. Paul. In addition, the hikes over this period reduced hours worked (-1.3% in Minneapolis and -2.3% in St. Paul) and overall employee earnings (-1.0% in Minneapolis and -2.1% in St. Paul). Researchers also found losses in industries “most exposed” to minimum wage hikes because they employ so many minimum wage earners were significantly greater – particularly in retail and restaurants.
  • Another study published by Cornell University professor Richard Burkhauser and San Diego State University economist Joseph Sabia finds the last four decades of minimum wage hikes have failed to produce any significant effect of alleviating poverty. Evidence from the most recent minimum wage hikes since the Great Recession in 2009 shows these “frequent, large increases in state minimum wages” failed to make any significant poverty reductions for affected employees. The researchers also find less than 10% of employees who would benefit from a $15 federal minimum wage live in poor families.

These new studies add to the bulk of economic research that finds the cons of severe wage hikes are present and significant. A review of three decades of economic research on minimum wages finds the overwhelming majority (more than 80%) of studies agree minimum wage hikes cause some kind of job loss. The literature demonstrates these effects are worse for younger, less educated employees.

Now, two new analyses find even in spite of effects from the pandemic, more recent wage hikes have continued this job-slashing trend. On the other hand, Burkhauser and Sabia find these hikes still don’t produce the anti-poverty effects proponents advertise, and in fact, the job loss consequences may even plunge some employees into poverty.

Policymakers at the state and federal level should continue to weigh the bulk of evidence surrounding minimum wage hikes before they plunge their employees into $17, $20, or even higher wage mandates.