Low-Skilled Workers Fell Victim to Minimum Wage Hikes During Great Recession, Study Finds

On January 1, fourteen states raised their minimum wages. From a five cent increase in South Dakota to one dollar increases in Alaska, California, Massachusetts, and Nebraska, these increases are intended to help workers at the bottom of the economic ladder.

But intentions don’t automatically produce positive results. A new paper finds that raising the minimum wage can hurt some low-skilled workers.

Just as economic theory since Adam Smith predicts, increasing the price of labor reduces demand for it. Jeffery Clemens, a University of California, San Diego economist, found that between 2006-2012—as the average minimum wage went up--the employment of young, low-skilled workers went down. From the paper’s summary [emphasis mine]:

From 2006 to 2012, the average effective minimum wage rose by $1.72 across the United States. The differential change between fully and partially bound states was $0.62. Extrapolating from in-sample estimates to the full effect of the $1.72 increase comes with standard caveats, which are discussed in section 4. My baseline estimate is that this period’s minimum wage increases reduced employment among individuals ages 16 to 30 with less than a high school degree by 5.6 percentage points. This amounts to 43 percent of the decline in this group’s employment between 2006 and 2012. Further, it accounts for a 0.49 percentage point decline in the employment to population ratio across all individuals ages 16 to 64.

The post-recession economy hasn’t been able to reverse the trend generated by the minimum wage increases, as AEI’s Micahel Strain quotes from the body of the paper:

Between 2006 and 2010, this skill group’s employment rate declined by 13 percentage points, from 40 percent to 27 percent. It remained down by 13 percentage points through 2014.

…

For present purposes, these developments’ most relevant implication is that the minimum wage has become more binding on the distribution of low-education, low experience individuals’ wages over time. The federal minimum wage’s rise from $5.15 to $7.25 occurred over the same time period as a 20 percent downward shift in the profile of this group’s real wage distribution.

Imagine if advocates had their way and mandated a $15 per hour minimum wage. How many low-skilled workers would have their job opportunities go up in smoke? People like Wisconsin franchise owner Marshall Chay, who started working at minimum wage through high school and college, would have a harder time rising up the economic ladder.

What’s needed for sustained increases in wages is faster economic growth, not wage policies that close the door on economic opportunity for the least-skilled.