The central question in the minimum-wage debate has shifted. Where economists once asked, “Will raising the wage floor kill jobs?” they now ask, “Just how transformative could a higher minimum wage be?”
This week, the Congressional Budget Office estimated that raising the minimum wage to the $15 level proposed by many Democratic candidates would lift the earnings of 27.3 million workers but lead to 1.3 million lost jobs.
The estimates were released into a research climate which has changed considerably since the CBO last considered the issue in 2014. Notably, a top journal published what many economists regard as the most rigorous analysis yet. It confirms that in recent decades, the minimum wage hasn’t destroyed jobs by making workers too expensive.
While the CBO report’s headline result still links the minimum wage to job loss, its estimates of those losses range from no significant job loss to 3.7 million job losses. Economic Policy Institute economist Ben Zipperer says the low-job-loss scenario is an acknowledgment that raising the minimum wage hasn’t proven to be as dangerous as researchers once feared. But he still found the CBO’s median estimate overly pessimistic.
The CBO derived many of its estimates of the labor market response to a higher minimum wage from data in 11 academic studies. Michael Reich, a University of California Berkeley economist who was cited elsewhere in the report, said he was skeptical of this approach, noting the CBO included at least two analyses whose results had been questioned. Their inclusion, he argued, “reveals an unwillingness to recognize the major differences in scientific quality among studies."
Michael Strain of the American Enterprise Institute, also cited elsewhere in the report, defended the nonpartisan research agency. “CBO did a good job of weighing the evidence and coming to perfectly sensible and reasonable conclusions that reflect the state of knowledge on this issue,” Strain said.
The CBO’s publication schedule ruled out the inclusion of a new working paper from Reich and his colleague Anna Godoey measuring the local effect of 51 changes in the minimum wage since 2007. Their work was some of the first to look at hikes as large, in magnitude, as those that we’d see if the U.S. adopted a $15 minimum wage.
“We don’t find job losses in places where the local impact of existing minimum wage is similar to what we estimate the impact of a $15 federal minimum wage would be, even in low-wage states,” Godoey said.
The Berkeley team builds on a tradition of headline-making, mind-changing research dating to the work of David Card, now of Berkeley, and the late Alan Krueger, in the 1990s. Minimum-wage effects are so fiendish to disentangle given available data, prominent MIT economist David Autor said, that they have pushed scholars to pioneer multiple innovative statistical methods now widely used in economics and related social sciences.
In the most definitive study to date, published this year in the top-rated Quarterly Journal of Economics, UMass Amherst economists Doruk Cengiz and Arindrajit Dube as well as Attila Lindner of University College London and EPI’s Zipperer evaluated the local effect of more than 130 minimum-wage increases since 1979 and showed the fall in jobs paying less than the new minimum wage had been fully offset by the jump in new jobs paying just over it.
Autor called it “the most important work on minimum wage effects since Card and Krueger’s work” and said that it should win over some skeptics and “shift the weight of consensus.”
University of California San Diego economist Jeffrey Clemens, whose work to disentangle the effects of the Great Recession from the effects of raising the minimum wage was published in the Journal of Public Economics and cited by the CBO, cautioned against giving any one study too much weight.
“For the papers that are just getting published now,” Clemens said, “the profession and the policymaking community will likely take several years before people feel like they are congealing on a final consensus.”
As that consensus congeals, researchers are exploring broader ways in which a higher minimum wage can transform society. We’ve collected their most notable findings, many of which were cited by the CBO.
Suicides fall. As we first reported in April, raising the minimum wage by 10 percent could reduce suicides by 3.6 percent among adults with a high school degree or less, according to a team which included both Godoey and Reich.
Criminals break the cycle. A 50-cent rise in the minimum-wage reduces the likelihood someone will return to prison within a year by 2.8 percent, according to an analysis of records for almost 6 million offenders released between 2000 and 2014. It was circulated in September 2018 by the National Bureau of Economic Research. The finding should help allay fears that a higher minimum wage will make entry-level employers less willing to hire the recently incarcerated.
Consumer spending rises. All else being equal, raising the minimum wage leads consumers to spend a bit more, especially in areas where the minimum wage affects the most workers, according to an analysis from Boston Fed and MIT economists to be published in the Journal of Money, Credit and Banking. In its report, the CBO writes that it expects such effects to dissipate within about five years.
Workers are more productive. In another working paper, researchers tracked 10,000 workers at about 200 department stores and found a $1 increase in the minimum wage led a typical employee to sell about 4.5 percent more per hour. For a worker earning the minimum wage, the increase could be almost 20 percent. “These productivity gains arise mostly during periods of high unemployment where workers are afraid of losing their jobs,” said author Decio Coviello, an economist at HEC Montreal.
Wage increases ripple upward. The landmark Quarterly Journal of Economics analysis mentioned above also confirmed findings that a rising minimum wage ripples through the organizational chart, helping workers who earn as much as $3 an hour more than the new minimum wage. About 40 percent of its wage benefits go to workers who aren’t directly affected.
Employers do not cut benefits. In a previous working paper, UMass Amherst’s Cengiz used artificial intelligence to identify workers most likely to be hit by wage increases and showed that — contrary to popular belief — employers did not reduce benefits such as employer-sponsored health insurance to free up money to cover higher wages.
Poverty rates fall. CBO projects that a $15 minimum wage would lift incomes of Americans living below the poverty line by 5.3 percent or $600 a year (adjusted for inflation) in 2025. As a result, 1.3 million of those people are projected to climb above the poverty line. Godoey and Reich’s analysis shows this effect would be consistent with historical patterns.
Job-hopping falls. The CBO reports “a higher minimum wage typically reduces employee turnover.” In a 2016 analysis in the Journal of Labor Economics, Dube and Reich, along with T. William Lester of the University of North Carolina, analyzed federal job-switching data to show low-wage workers switch jobs less often after a minimum-wage increase is passed.
Older folks work longer. In an analysis to be published in the journal Industrial and Labor Relations Review, researchers found a higher wage floor was associated with a modest rise in employment of older workers.
correction: In the report and its appendixes, the CBO addressed nearly all of the downstream effects listed above, including the ripple effect of a minimum-wage hike, as well as its effects on poverty, consumer spending and productivity.