Raising minimum wage does not reduce jobs, studies suggest,
But does better pay mean fewer jobs?
WASHINGTON — U.S. President Barack Obama’s proposal to increase the minimum wage by 24 per cent faces long odds in Congress, where Republicans took aim at it minutes after the state of the union address. That might not matter: Some states took action long ago.
Nineteen states and the District of Columbia already require employers to pay more than the $7.25 an hour required by federal law, according to the U.S. Labor Department. At least eight more, including New York and New Jersey, are considering legislation to join them. On Jan. 1, Washington state, home to the highest minimum wage in the U.S., raised its floor to $9.19, more than the $9 an hour proposed by Obama.
The patchwork of laws has offered new insight into the effect of higher wages on jobs. Some economists are challenging the traditional precept that as the price of something goes up, demand goes down, at least when it comes to labour.
“We’ve had this natural experiment where states that have raised their minimum wage border states that haven’t,” said Jack Temple, a policy analyst at the National Employment Law Project, a non-profit worker advocacy group. “Businesses have adjusted without losing employment.”
Temple and others point to two studies that challenge the conventional wisdom that higher wages lead to f ewer jobs. The first, a 1994 study by Alan Krueger, now Obama’s chairman of the Council of Economic Advisors, and David Card, director of the Labor Studies Program at the National Bureau of Economic Research, compared fast-food eateries in New Jersey and Pennsylvania after New Jersey raised its hourly minimum wage to $5.05 from $4.25 in 1992.
“The increase in the minimum wage increased employment,” the two found. For low-wage workers, job prospects actually improved.
That finding was buttressed in 2010, when a group of economists used a similar approach to compare restaurant workers in neighbouring states with different wage limits. The study, written by a group that included Michael Reich, director for the Institute for Research on Labor and Employment at the University of California, Berkeley, concluded that minimum wage increases did not reduce employment.
The findings are at odds with other work, most notably from David Neumark, director of the University of California’s Center for Economics and Public Policy in Irvine, who has studied the question with Federal Reserve economist William Wascher.
Their 2007 review of academic studies found that “almost all point to negative employment effects.”
“It’s the law of demand,” said William Dunkelberg, chief economist at the National Federation of Independent Business, a lobbying group for small employers. “The higher the price of anything, the less will be taken.”
In his speech Feb. 12, Obama proposed raising the hourly federal minimum wage to $9 from $7.25 by the end of 2015. That would return the wage to its highest inflation-adjusted value since 1981, according to the White House.
Echoing Dunkelberg, House Speaker John Boehner dismissed the idea: “When you raise the price of employment, guess what happens? You get less of it,” the Ohio Republican told reporters. ”
Democratic Sen. Tom Harkin of Iowa and Rep. George Miller of California said they’re moving ahead and will seek an even greater increase, to $10.10 an hour.
Twenty-one per cent of job losses during the recession were in lower-wage occupations, according to the National Employment Law Project. During the recovery, those hires outpaced gains in higher-paying occupations, accounting for 58 per cent of new positions since February 2010.
Washington’s minimum wage, which is indexed to rise and fall with inflation, has been above $9 an hour since January 2012. Last year the state had a 1.8-per-cent increase in non-farm payrolls, more than the 1.6 per cent growth in total U.S. jobs. Unemployment is lower, too, at 7.6 per cent, compared to 7.9 per cent nationally.
The Washington Restaurant Association says the law makes the state less competitive and points to Census Bureau data that shows that Washington food outlets employ three fewer workers per establishment than the national average.