New Study Finds Wage Hikes May Contribute to Homelessness

For decades, economists have found minimum wage hikes have cost jobs and livelihoods. Many studies also find these mandates are poorly targeted to lift people out of poverty. Now a new study shows local minimum wage increases may also increase homelessness.

Dr. Seth Hill of University of California-San Diego compares municipalities that raised their minimum wages in the last decade to those that kept their wage at the federal level ($7.25 per hour). In several different analyses, he finds cities raising their minimum wages at least $0.75 caused up to 25 percent increases in homeless counts compared with cities that kept their minimum wage at the federal hourly rate. He also finds variances with the size of local wage hikes: the larger the minimum wage increase, the larger the effect on homelessness.

Finally, estimating the relationship between wage hikes and the number of homeless, Hill finds every 10 percent increase in local minimum wages causes homeless counts to rise by 3 to 4 percent.

He attributes these disastrous effects to several factors, but notes the demonstrated effect of minimum wage hikes to cause job loss may trigger homelessness for those affected. He notes this may disproportionately affect lower-skilled employees who may be first to lose their jobs or be replaced by those with more skills or education for higher wage rates.

This study falls among an extensive literature showing minimum wage hikes cause several bad outcomes for the employees they purport to help.

  • The overwhelming majority of three decades of minimum wage research finds hikes cause significant job loss,
  • Job losses caused by wage hikes disproportionately affect lower-skilled or entry-level employees.
  • Researchers also find minimum wage hikes can contribute to inflation, especially causing food price increases.
  • A recent study finds minimum wage hikes push rental costs higher, and eat away at hourly wage gains employees may initially see from a minimum wage increase.
  • Economists have also found wage hikes may cause loss of other key employment benefits such as healthcare coverage.

These tradeoffs indicate that minimum wage hikes boost hourly wages for some employees while taking away jobs, earnings, and other benefits entirely for others. Overall, economists agree that minimum wages are not the best policy to lift working families out of poverty.

In fact, another new study released earlier this year finds among minimum wage hikes after the Great Recession generally “fail to uncover poverty-reducing effects.” The economists estimate raising minimum wages nationwide up to $15 per hour would largely miss poor families: less than 10 percent of those affected by such a proposal live in poverty.

Many economists see minimum wages as ineffective at best at helping poor employees, and many see net harmful consequences of such hikes. As such, policymakers should stick to other policies that boost earnings and protect employees’ purchasing power, such as expanding earned income tax credits and fighting causes of inflation.