Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels

Summary

Since the passage of the Fair Labor Standards Act in 1938, business interests and conservative politicians have warned that raising the minimum wage would be ruinous. Even modest increases, they’ve asserted, will cause the U.S. economy to hemorrhage jobs, shutter businesses, reduce labor hours, and disproportionately cast young people, so-called low-skilled workers, and workers of color to the bread lines. As recently as this year, the same claims have been repeated, nearly verbatim.

Raise wages, lose jobs, the refrain seems to go.

If the claims of minimum-wage opponents are akin to saying “the sky is falling,” this report is an effort to check whether the sky did indeed fall. In this report, we examine the historical data relating to the 22 increases in the federal minimum wage between 1938 and 2009 to determine whether or not these claims—that if you raise wages, you will lose jobs—can be substantiated. We examine employment trends before and after minimum-wage increases, looking both at the overall labor market and at key indicator sectors that are most affected by minimum-wage increases. Rather than an academic study that seeks to measure causal effects using techniques such as regression analysis, this report assesses opponents’ claims about raising the minimum wage on their own terms by examining simple indicators and job trends.

The results were clear: these basic economic indicators show no correlation between federal minimum-wage increases and lower employment levels, even in the industries that are most impacted by higher minimum wages. To the contrary, in the substantial majority of instances (68 percent) overall employment increased after a federal minimum-wage increase. In the most substantially affected industries, the rates were even higher: in the leisure and hospitality sector employment rose 82 percent of the time following a federal wage increase, and in the retail sector it was 73 percent of the time. Moreover, the small minority of instances in which employment—either overall or in the indicator sectors—declined following a federal minimum-wage increase all occurred during periods of recession or near recession. That pattern strongly suggests that the few instances of such declines in employment are better explained by the overall national business cycle than by the minimum wage.

These employment trends after federal minimum-wage increases are not surprising, as they are in line with the findings of the substantial majority of modern minimum-wage research. As Goldman Sachs analysts recently noted, citing a state-of-the-art 2010 study by University of California economists that examined job-growth patterns across every border in the U.S. where one county had a higher wage than a neighboring county, “the economic literature has typically found no effect on employment” from recent U.S. minimum-wage increases.^[1] This report’s findings mirror decades of more sophisticated academic research, providing simple confirmation that opponents’ perennial predictions of job losses when minimum-wage increases are proposed are rooted in ideology, not evidence.

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^[1] Daan Struyven & Alec Phillips, Goldman Sachs US Daily: Minimum Wage Hikes and Wage Growth, April 12, 2016.