An Assortment of Thoughts on the Minimum Wage

Michigan’s minimum wage goes up to $8.15/hour on Labor Day. Student workers at my school have had their maximum weekly hours cut from 8 to 6 1/2.

Santa Fe, New Mexico substantially increased its minimum wage ten years ago, and it now stands at $10.66/hour, the second highest in the country. The effects on the economy seem to have been minimal, neither destroying it nor noticeably improving it. However the initial application only to businesses with 25 or more employees resulted in “a lot of games being played by business.” In other words, businesses employing fewer employees to stay under the cap. It’s also reported that businesses reduced overtime and cut benefits, and the disabled had a harder time finding jobs. Some employees say they’re doing better, others say rents and prices went up.

Some Connecticut workers are also frustrated that the state’s 45 cent/hour minimum wage increase hasn’t helped them much.

When Segui began working at Dunkin’ Donuts, she was scheduled for 35 hours a week. A few months ago, she and other workers starting getting fewer hours. She now works from 20 to 27 hours a week.

The Seattle Weekly frets that wage theft–“requiring employees to work off the clock, denying meal breaks, illegal deductions, misclassifying workers as independent contractors, and not paying for all hours worked”–may undermine the effect of the city’s minimum wage increase.

University of Wisconsin professor of Social Work Ann Haley-Lock finds that since the Fair Labor Standards Act was passed, “a growing employer focus on labor cost containment has meant that work hours, as well as pay and benefits, are kept at a minimum when possible, often through “just-in-time” reductions in workers’ schedules in times of low customer demand.”

Joseph Sabia and Richard Burkhauser are pessimistic about the poverty fighting effects of minimum wage increases.

Using data drawn from the March Current Population Survey, we find that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates. When we then simulate the effects of a proposed federal minimum wage increase from $7.25 to $9.50 per hour, we find that such an increase will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour. Assuming no negative employment effects, only 11.3% of workers who will gain live in poor households, compared to 15.8% from the last increase. When we allow for negative employment effects, we find that the working poor face a disproportionate share of the job losses. Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor.

Richard McKenzie notes that “most econometric studies over the past half-century show that a 10 percent hike in the federal minimum wage results in job losses for unskilled workers of no more than 3 percent, and potentially less than 1 percent,” but points to the overlooked non-monetary impact on low wage workers.

– When the minimum wage was increased in 1967, economist Masanori Hashimoto found that workers gained 32 cents in money income but lost 41 cents per hour in training — a net loss of 9 cents an hour in full-income compensation.

– Similarly, Linda Leighton and Jacob Mincer in one study, and Belton Fleisher in another, concluded that increases in the minimum wage reduce on-the-job training and, as a result, dampen long-run growth in the real incomes of covered workers.

– Additionally, North Carolina State University economist Walter Wessels determined that a wage increase caused New York retailers to increase work demands. In most stores, fewer workers were given fewer hours to do the same work as before.

– More recently, Mindy Marks found that the $0.90 per hour increase in the federal minimum-wage rate in 1990 … increased the likelihood that covered workers would be reduced to part-time work by 26 percent.

An economic roundtable report underwritten by the Los Angeles County Federation of Labor claims that a minimum wage increase to $15/hour would give LA workers “$7.6 billion more a year in pay.

average full-time, low-wage worker, now working 2,150 hours a year and paid $9.55 an hour, would receive $11,729 more in annual pay. The average part-time, low-wage worker, now working 1,031 hours a year and paid $8.89 an hour, would receive $6,297 more in annual pay.

Note that this assumes no changes in hours employees work.

The Congressional Budget Office analyzes prospective federal minimum wage increases to $9/hour or $10.10/hour.

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects. As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers…

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates…

– Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion.

– Real income would increase, on net, by $5 billion for families whose income will be below the poverty threshold under current law, boosting their average family income by about 3 percent and moving about 900,000 people, on net, above the poverty threshold (out of the roughly 45 million people who are projected to be below that threshold under current law).

– Families whose income would have been between one and three times the poverty threshold would receive, on net, $12 billion in additional real income. About $2 billion, on net, would go to families whose income would have been between three and six times the poverty threshold.

– Real income would decrease, on net, by $17 billion for families whose income would otherwise have been six times the poverty threshold or more, lowering their average family income by 0.4 percent.

A National Bureau of Economic Research Working Paper studies minimum wage effects in France and the U.S., finding that

in the French case, albeit imprecisely estimated, a 1% increase in the real minimum wage decreases the employment probability of a young man currently employed at the minimum wage by 2.5%. In the United States, a decrease in the real minimum of 1% increases the probability that a young man employed at the minimum wage came from nonemployment by 2.2%.

In response to Seattle’s minimum wage increase to $15/hour, SeaTac vendors are adding a minimum wage surcharge to their prices.

Ikea, which already pays its workers above the federal minimum wage, will increase its minimum pay to $10.76. The higher wages will not, Ikea says, be offset by reduced hours or jobs, but “by such cost-cutting measures as using national purchase programs for such items as cleaning services or printer paper. In the past, each store would use individual suppliers.”

I wonder if people who are normally cynical about firms’ promises to their workers will maintain their skepticism here.