Editor’s Note: Anna Godoey and Michael Reich are research economists at the Center on Wage and Employment Dynamics at the University of California, Berkeley. They have authored numerous studies on the effects of minimum wages. The opinions expressed in this commentary are their own.
The federal minimum wage has become a focal point of the 2020 presidential race and is gaining momentum. Almost all the Democratic candidates support a $15 minimum wage. A bill in the US House of Representatives to gradually raise the federal minimum wage to $15 by 2024 has collected more than 200 cosponsors and could come up for a vote sometime this month. And states around the nation are increasingly phasing in $15 standards.
Most economists say that modest minimum wage increases have not hurt employment. Yet opponents of a $15 federal minimum wage say an increase would push us into uncharted territory when it comes to jobs. They note that such minimum wage levels have not been studied by economists, especially in states where wages are very low. That’s true: Most studies of state minimum wages do not look at wages higher than $10 an hour. And, earlier this week, the Congressional Budget Office released a report estimating that a $15 federal minimum wage by 2025 would cost 1.3 million jobs.
Our research suggests otherwise.
To measure where a minimum wage might have the most impact on employment, economists use the relative minimum wage — its ratio to the median wage. A higher ratio implies a greater possible impact.
The CBO drew only on studies that looked at state-level data on wages and employment. But our study drills down to the county and metro-level data that have mainly been ignored by researchers.
It turns out that the ratios of the minimum wage to the median wage in over 150 US counties and metro areas already are in that higher 60% to 80% range. That makes those areas useful indicators of what would happen if the minimum wage was raised to $15 by 2024.
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Our research examined 51 minimum wage increases since 2004 in 45 states. We examined how high relative median wages effected employment. We also looked at hours and weeks worked among the groups of workers who are most likely to work in minimum wage jobs, which include those with a high school education or less, and teens. We conducted tests to check that our minimum wage comparisons were not contaminated by other changes that took place before or after each of the minimum wage increases.
What we found was that higher minimum wages do not have adverse effects on employment, or the weeks or hours worked among minimum wage workers — even four years after minimum wages are increased. We didn’t find adverse employment effects among women and minority groups, either. As a result, we determined that the United States can raise pay to $15 an hour by 2024 without hurting jobs, even in low-wage states.
We also discovered something else: A high minimum wage relative to the median wage has positive effects on wages, especially in low-wage areas where the highest proportion of workers received pay increases above their states’ current minimum wages. We also found that the $15 minimum wage reduces household and child poverty in such areas. Agricultural areas of California, Pennsylvania and Texas, upstate New York and much of Mississippi and Alabama already have high ratios of minimum wages to median wages and could likely afford to raise the minimum wage to $15.
Our findings are consistent with other studies that show how businesses, consumers and the economy absorb higher wage standards. Higher minimum wages reduce employee turnover costs and increase worker productivity. They raise consumer demand by increasing the purchasing power of workers. Low-wage employers, particularly in the restaurant industry, also absorb minimum wage costs through small price increases in restaurants. Those of us who eat in restaurants are able and willing to pay a few cents more for a typical meal, so restaurant sales go up even with the small price increases.
Our research indicates that pay can increase to $15 an hour in low-wage states without losing jobs, that incomes will grow, and fewer children will grow up in poverty.