Economic security is a big concern for millions of working families across the United States. Although the most recent Census data show a modicum of income improvement for families at the bottom and middle of the economic ladder, an unemployment rate that has been steadily decreasing as the recovery from the Great Recession continues, and significant progress in raising people out of poverty all thanks, in part, to progressive policy, far too many families are still struggling to make ends meet.1 Working families and especially low-wage workers are being squeezed by rising costs while their income and wealth remains below prerecession levels.2 Moreover, wages have not kept up with increases in productivity and remain stagnant for many workers.3
One key policy tool that will help boost workers’ wages is an increase to the federal minimum wage. At just $7.25 an hour, the federal minimum wage has not seen an increase since 2009, meaning its real value has eroded with each passing year.4 According to the Massachusetts Institute of Technology, or MIT, Living Wage Calculator, the federal minimum wage is far below a living wage in many cities in the United States.5 This makes it increasingly harder for low-wage workers to get ahead and makes raising the minimum wage even more crucial.
While 75 percent of Americans support increasing the minimum wage, attempts to increase it at the federal level have been obstructed by Republican in Congress.6 In the absence of congressional action, states and localities have passed laws to raise their minimum wages. As of August 2016, 29 states and Washington, D.C., have minimum wage rates that are higher than the federal minimum wage.7 And in November, several states will vote on minimum wage ballot measures.8
Cities are at the forefront of this effort and are stepping in to ensure that workers get a fairer shake by raising their minimum wages through legislation, ordinances, and ballot measures. Raising the minimum wage is incredibly important in cities because the higher cost of living in many cities puts an additional squeeze on minimum wage workers. Since 1993, when Washington, D.C., first increased its minimum wage from $4.25 to $5.25, 32 cities have followed suit and raised their minimum wages, including Seattle, San Francisco, Chicago, and Los Angeles.9 Moreover, the fight to raise the minimum wage has gained momentum. In 2014, 12 cities passed legislation to raise their minimum wage, followed by 16 cities passing minimum wage increases in 2015.10 Currently, there are proposals to raise the minimum wage in Olympia, Washington; Davis, California; Sacramento, California; Washington, D.C.; Pasadena, California; and Palo Alto, California.11 Additionally, there are ballot measures to raise the minimum wage in Washington, D.C., and Flagstaff, Arizona, in 2016, and in Cleveland, Ohio, in May 2017.12
As the trend of minimum wage increases in cities spreads, there is continued debate over whether or not increasing the minimum wage hurts a city’s economy, specifically whether or not increasing a city’s minimum wage increases its unemployment rate. Many congressional Republicans, and other opponents of the minimum wage claim that increasing the minimum wage kills jobs, a narrative that has spanned several decades. In 1980, then-Gov. Ronald Reagan (R-CA) declared, “The minimum wage has caused more misery and unemployment than anything since the Great Depression.”13 And in present day, Sen. Ted Cruz (R-TX) continues to parrot the same story, claiming that “every time we raise the minimum wage, predictably what happens is a significant number of people lose their jobs.”14 As this brief will detail, the evidence appears to show that these conservative talking points do not stand up to reality. In fact, academic evidence finds that the minimum wage has no discernible effect on employment. Furthermore, in 74 percent of cities that have raised their minimum wage, unemployment did not increase in the year following the wage hike.15
This brief builds on previous CAP Action analysis on the employment effects of the minimum wage in cities and examines the impact of the minimum wage on the economy, wages, and employment. This evaluation incorporates academic analysis of the minimum wage’s employment effects as well as an independent analysis on the employment level in cities. Although the independent analysis does not have the controls to imply causality, it clearly shows that unemployment is not increasing in a majority of cities that have raised the minimum wage.
Impact on economy and wages
Americans are working harder than ever, but their incomes are stagnating as costs are rising. Although the U.S. economy has greatly improved since the Great Recession and recent Census data shows some income growth last year—the nation added about 15 million jobs since February 2010—income still remains below pre-recession levels.16 Part of this wage stagnation is due to workers being decreasingly compensated for their productivity growth: Hourly inflation-adjusted compensation for workers grew only 8.7 percent between 1973 and 2014, compared to 72.2 percent growth in productivity.17
Additionally, the erosion of the real value of the federal minimum wage also hurts earnings. The federal minimum wage was last increased in 2009 to $7.25.18 It has not kept up with inflation and is worth less today than in the 1960s, all while costs for the average working family—such as child care, rent, and higher education—have skyrocketed.19 The current minimum wage is a poverty wage: In fact, a family with one child and a single parent working full-year, full-time for the federal minimum wage would be below the poverty line for a family of two in 2016.20 The declining value of the minimum wage hurts low-income workers, contributing to the fact that earnings for low-income workers have grown much more slowly than wages for those at the top. In fact, inflation-adjusted incomes for the top 1 percent increased by 275 percent from 1979 to 2007, while the bottom 20 percent of households only experienced an 18 percent growth in their real income over the same time period.21
Increasing the minimum wage would help raise wages, especially for low-income workers. According to the Economic Policy Institute, 35 million workers would earn a raise if the minimum wage was increased to $12 by 2020.22 Raising the minimum wage also helps to turn the tide of growing income inequality. A 2010 study tied the rise in income inequality for low-wage workers over the last few decades to the declining value of the minimum wage, confirming results found in previous studies.23 Additionally, raising the minimum wage helps to reduce the economic squeeze faced by individuals at the bottom of the income ladder. Such economic relief would thereby reduce poverty. In fact, several economists attribute the income improvement for workers at the bottom and middle of the economic ladder in the recent Census data in part to cities and states increasing their minimum wages.24 Furthermore, a consensus of economists agree that raising the minimum wage reduces poverty.25 Specifically, a 2013 study found that the share of people living in poverty drops 2.4 percent for every 10 percent increase in the minimum wage.26
Raising the minimum wage is not only good for low-wage workers, it is good for the overall economy. Giving workers a raise gives them more money to put directly back into the economy by purchasing needed goods and services and thereby helping to grow the economy grow.27 In fact, a 2011 study by the Chicago Federal Reserve Bank found that every $1 increase per hour for a minimum wage worker results in $2,800 in new consumer spending by her household over the next year on average.28
Impact on employment levels
Although workers and the economy would both benefit from an increased minimum wage, congressional Republicans routinely obstruct legislation that would raise the minimum wage. At the center of the debate over whether or not to raise the minimum wage is the question of its effect on employment levels. Conservatives argue that raising the minimum wage kills jobs. Congressional Republicans constantly use this argument to obstruct legislation to raise the federal minimum wage. When asked about raising the minimum wage, House Speaker Paul Ryan (R-WI) said, “When you raise the minimum wage, you’ll lose over a million jobs.”29 Senate Majority Leader Mitch McConnell (R-KY) has also touted the 1 million jobs lost figure to explain his opposition to raising the minimum wage, and when asked about minimum wage proposals, McConnell dismissed them saying: “We’re not going to be debating all these gosh darn proposals.”30
However, according to academic evidence, raising the minimum wage does not appear to cause massive job loss, like conservatives warn. For example, Paul Wolfson and Dale Belman, a statistical research associate at the Tuck School of Business at Dartmouth University and a professor of Michigan State University, respectively, conducted a meta-analysis of over 60 analyses on the effect of the minimum wage on employment. After controlling for publication bias, they found that increasing the minimum wage has no discernible effect on employment.31 John Schmitt, of the Center for Economic and Policy Research, also analyzed a range of minimum wage studies from 2000 to 2013 and found that there is little to no employment response to increases in the minimum wage.32 Studies show the minimum wage does not appear to hurt jobs in part because it reduces worker turnover and leads to improvements in organizational efficiency.33
CAP Action analysis
This brief examines academic research and conducts independent analysis to evaluate conservatives’ claim that minimum wage increases kill jobs by looking at unemployment rates in cities that have raised their minimum wage. This brief is a follow-up to previous CAP Action analysis on what occurred to employment levels after minimum wage increases took effect. Both analyses look at the seasonally adjusted quarterly unemployment level in cities that have raised the minimum wage. To observe an employment effect, CAP Action compares the unemployment rate during the quarter of the minimum wage increase to the unemployment rate in that city four quarters—a full year—after the increase to see if unemployment increases in the year after a minimum wage increase is implemented. The author analyzes every city-level minimum wage increase since 1993, the year when the first minimum wage increase was enacted in Washington, D.C.
The previous CAP Action analysis examined 25 minimum wage increases in five cities. It found that in 64 percent of the local minimum wage increases from 1993 to 2013, the local unemployment rate did not increase one year after the wage hike.34 This issue brief updates that analysis, looking at the employment effect of minimum wage increases in 13 cities, specifically Albuquerque, Las Cruces, and Santa Fe, New Mexico; Berkeley, Oakland, Richmond, San Diego, San Francisco, San Jose, and Sunnyvale, California; SeaTac and Seattle, Washington; and Washington, D.C. Since more time has elapsed to observe unemployment rates in additional cities, the author was able to observe 43 minimum wage increases from 1993 to the second quarter of 2015.
Like the previous CAP Action analysis, the results of this analysis showed that increasing the minimum wage did not result in major job loss in these cities. From 1993 to the second quarter of 2015, cities raised their minimum wage 43 times. Of those 43 instances, the unemployment rate did not increase in the corresponding city a year after the wage hike in 32 cases, that is to say, in 74.4 percent of cases. And of the 11 cases where the unemployment rate rose after the minimum wage increase, six of those job losses took place in the midst of Great Recession when the unemployment rate rose across the entire United States.
Due to data limitations, the author was unable to evaluate every minimum wage increase that has occurred in recent history. Many cities passed minimum wage legislation from 2014 through 2016, but those minimum wage increases have either yet to be implemented or have not been implemented long enough to be evaluated. Additionally, this analysis is not meant to imply causality and it does not use the controls implemented in academic research. More rigorous research is needed to determine the employment effect from a minimum wage increase in all of these cities. However, given the benefits of raising the minimum wage—boosting wages, reducing inequality, and lessening poverty—along with no apparent major job loss in cities, it appears that there are significant reasons to raise the minimum wage.
Indeed, some academic research has been done about minimum wage increases in cities. The University of Washington, for example, evaluated the first of Seattle’s 10 scheduled minimum wage increases, which will eventually result in a $15 minimum wage. The authors of that study compared Seattle to a geographic area with similar characteristics as Seattle but without a minimum wage increase. They called this area “synthetic Seattle,” and determined that the wage hike did not significantly affect employment.35 Additionally, the authors found that in the 18 months since the Seattle minimum wage ordinance passed, low-wage workers received a significant boost in wages.36
Studies in San Francisco also show that raising the minimum wage has not dented the city’s rapid job growth. For example, a 2014 study found that, from 2004 to 2011, private-sector employment grew in San Francisco under minimum wage increases, while employment fell in counties that did not have a higher local minimum wage.37 According to the study, several factors—including decreased employee turnover, improved customer service, and worker productivity—ensured that employment did not drop in San Francisco.38
Conclusion
While this brief does not prove definitively that raising the minimum wage has no effect on employment, because it lacks the rigor of an academic study, this brief’s findings—coupled with academic research—clearly demonstrate that conservatives’ claims that increasing the minimum wage negatively impacts employment do not square with the evidence. Rather, in 74.4 percent of the cities with minimum wage increases from 1993 through the second quarter of 2015, the unemployment rate did not increase after the wage hike.
Certainly, further research should be done as more cities increase their minimum wage. However, it seems clear that the conservative reasoning behind obstructing minimum wage legislation, especially at the national level, is not based in reality. Moreover, this same conservative rhetoric is used to defend business interest groups, which have forcefully opposed a minimum wage increase and championed efforts to obstruct raising the minimum wage. These attacks against minimum wage increases are purely political and not based on sound policy or research.
Molly Cain is a Research Associate in the Center for American Progress Action Fund War Room.
The author would like to thank Ryan Erickson, Jackie Odum, Madeline Peltz, and Thomas Duda for their help.
Endnotes