Finance

'Raise the wage' advocates have reason for optimism

In the past few years, a wave of state and local activity has transformed minimum wage policy in the United States.

While many parts of the country remain at the federal minimum of $7.25, multiple cities and states are heading toward or already have wage floors at or above $15. These policies represent some of the highest minimum wages in U.S. history.

Many recent studies have found that past federal and state minimum wage increases have raised the earnings of low-wage workers without causing significant employment losses.

But with states and cities now raising their minimum wage at levels above our historical experience, policymakers today want to know whether these new policies could hurt the workers they are intended to help.

Our new study analyzes minimum wage effects in six cities that were early adopters in this new wave: Chicago, Washington, D.C., Oakland, San Francisco, San Jose and Seattle. During our study period, which extended through 2016, minimum wages in these cities ranged from $10 to $13.

To measure the effects of the policies, we analyzed earnings and employment growth in the six cities and compared them to other metropolitan areas throughout the United States that did not experience any change in their minimum wage policy.

Following many other studies on the effects of the minimum wage, we look specifically at workers in restaurants, a major employer of low-wage workers.

We found that, so far, the new minimum wage policies are working just as intended - they are raising the earnings of low-wage workers without causing statistically significant employment losses.

In particular, consider the average restaurant in a city like Seattle that had paid their employees about $400 a week. Our findings indicate the workers received an extra $16 to $32 a week after the city raised the minimum wage to $13 in 2016 from $9.47 a year earlier.

It might seem surprising that cities like the ones we study can raise the minimum wage to such high levels without causing significant employment losses. In fact, our earnings and employment results fall remarkably in line with numerous studies of state and federal minimum wage policies conducted over the past few decades.

Employers obtain benefits from minimum wage increases, especially in high-turnover industries such as restaurants. When you give low-wage workers more money, they are less likely to look for better-paying jobs and are less likely to leave.

This fall in quits helps employers save money on recruiting and training costs; and the employer gets a more experienced and thus more productive workforce. To help pay for minimum wage increases, employers also have the option to pass some of the costs to consumers in the form of modestly higher prices.

What does our study imply for lawmakers in Congress who are considering a federal $15 minimum wage?

Our findings are reassuring for minimum-wage advocates. Yet it remains an open question how the citywide policies that we study would fare in poorer parts of the U.S.

But we should keep in mind that many low-wage workers live in states where the minimum wage has been stuck at $7.25 since 2009. In the interim, inflation has eroded the real value of this wage floor by 15 percent.

For low-wage workers earning at or near $7.25, the benefits of raising the minimum wage are clear. Our study pushes our knowledge of minimum wage effects further, and it adds to the many others that have shown that raising the minimum wage at these levels have significant effects on the earnings of low-wage workers while having little, if any, adverse effects on their employment.

City, state or federal, the minimum wage today continues to be a key policy tool to bring up living standards for those who are struggling to make ends meet while helping to stem growing inequality. 

Carl Nadler, Sylvia Allegretto and Michael Reich are economists with the Center on Wage and Employment Dynamics at the University of California, Berkeley

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