Impact of the Minimum Wage on Employment and Low-Income Families

Morning Edition had a piece on the minimum wage hikes that took effect in various states and cities at the start of the year. The piece included an interview with economist David Neumark who referred to research showing that a 10 percent hike in the minimum wage leads to a 1-2 percent drop in employment among minimum wage workers.

While there is research showing no job loss (as noted in the piece by David Cooper, an analyst at the Economic Policy Institute), it is worth noting what the 1-2 percent job loss number would actually mean. Minimum wage jobs tend to be high turnover. A reduction in employment of 1-2 percent would effectively mean that the typical minimum wage worker would spend somewhat more time between jobs rather than workers literally be throwing out of their jobs. In other words, it would mean that the typical minimum wage worker would get 10 percent more pay for each hour worked, but would work 1-2 percent fewer hours.

The piece also concluded by saying that a minimum wage hike would have little benefit for most low-income families because most workers with families are earning wages well above the minimum. It asserted that many of the workers helped by the increase will be teenagers in middle income families who work for spending money. In fact, an analysis by Heather Boushey and John Schmitt of the last national law raising the minimum wage found that 70 percent of the people who would benefit were over the age of 20.

Minimum wage too low
written by Robert Salzberg, January 03, 2012 6:52

If the $1.60 an hour minimum wage from 1968 was indexed for inflation, it would be worth $10.40 an hour today. Raising the federal minimum wage from it's current $7.25 an hour to $10.00 an hour and indexing it for inflation would be a good first step towards reducing inequality in America.

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written by tom michl, January 03, 2012 7:48

This post makes a very important point: even if there is a loss of employment, minimum wage workers will still be better off after an increase in the wage floor. They will on average work fewer hours and take home more income. Working fewer hours means having more time for leisure, which most people value. It has never ceased to amaze me that economists like Neumark seem to think that showing there are disemployment effects ends the argument--as if they never had Econ 101 and learned about the value of leisure. The argument is about welfare, period.

You get what you pay for.
written by jumpinjezebel, January 03, 2012 9:17

If you want high turnover, stealing and sloth - hire only workers desperate enough to work for the minimum. If you want people that will stay, work hard and do good for your enterprise - pay them a living wage and benefits. That's how you grow a company not by stuffing your pockets with all the gold.

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written by pete, January 03, 2012 9:23

Had a 40% increase since 2007, hmmm, now something like 25% unemployment in the inner city...great time to use price controls, for that is what a minimum wage is, to wedge these folks further out of the market. No entry level, no apprenticeships, and now further widening the gap between marginal value of product and ability. Probably will be accompanied by "tax incentives" or "enterprise zones" to undo the harm.

-1

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written by skeptonomist, January 03, 2012 9:49

Since real wages began to decline in the 70's more families have found it necessary to have multiple earners. Many of those earning minimum wage are wives with minimal training. There are certainly a lot of teenagers earning minimum wage, but why should their earnings be irrelevant if they contribute to a decent standard of living for the family? Not all teenagers' families belong to the 1%.

causality skepto?
written by pete, January 03, 2012 10:14

Since the labor force increased due to part time workers, especially women allowed to do more than teach and nurse, real wages have fallen...

-1

Pete
written by Union Member, January 03, 2012 11:57

Why not have Goldman, Citi, JPMorgan, GE...i.e. All the corporations that get bailed out or don't pay any taxes -in other words take government subsidies - hire unemployed young people as internse... but wait...interns don't get paid at all and what you call"Inner City" young people can't be interns, they can't work for free - only rich kids can afford to work at these prestigious firms without compensation. That's their legacy; that's their entitlement. Isn't it?

Union Member...indeed a great point!
written by pete, January 03, 2012 1:39

That's actually an astute point! I guess you are saying only on wall street does the government allow apprenticeships. (I understand cooks work for free for prominent chefs, until the SEIU kicks them out I guess.)

Of course, we pay for education, unless it is apprenticing...which is simply not allowed.

There's a 10 year old kid at the local hardware store helping out his father...there are exceptions.

assumptions
written by LA-CC, January 04, 2012 2:22

@Pete I wonder if you really don't understand the points being made here or if you think you're just being 'clever.' :)
1)"further widening the gap between marginal value of product and ability" - Can you show this? It seems every economist and all research confirms a growth in productivity - consistently over decades. Do you have any evidence of this gap re: marginal value/ability? A burger flipper or waitress probably needs essentially the same abilities as ever.
2) If the entry of more workers lowered wages, then the entry of millions of even lower waged workers from 3rd world into the US market for many jobs pushed wages drastically lower. This doesn't really negate a need for minimum wages in the US, so what's your point here?
3)Maybe your reading comprehension isn't adequate to address the point made by Union Worker. UW didn't say that the government controlled internships, but that a poor kid can't afford to work for $0 in order to get that foot in the door to better jobs.

assumptions...
written by pete, January 04, 2012 9:34

Huh?
1) If they were producing greater than or equal to $10.40 an hour, they would be hired. Do the math...nobody throws away income. SF restaurants are laying off busboys now.

2) Clearly this is the case...except to go further, do to minimum wages we drive a lot of the workers underground, working for cash, so that there is no SS taxes or income taxes. Look at Nuevo Orleans....hurricane chasers.
3) This is the silliest point. Look, they are unemployed, i.e., making $0 now, and yet they can't afford to apprentice as a plumber or construction worker to build their human capital? Makes absolutely no sense to me...I've been working since 10 doing something, as a construction gopher and then on up. These paths are simply not available as much as they used to be.

Still, I get creative folks dropping by the house to offer to do yardwork etc., windows, whatever, at less than minimum wage. There is hope, but driving it underground is not a great idea in the long run.

Impact of the Minimum Wage on Employment and Low-Income Families

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