The Federal Minimum Wage Increase Hurt Many Low-Skilled Workers

By David Henderson.

"We find that increases in the minimum wage significantly reduced the employment of low-skilled workers. By the second year following the $7.25 minimum wage’s implementation, we estimate that targeted individuals’ employment rates had fallen by 6.6 percentage points (9%) more in bound states than in unbound states. The implied elasticity of our target group’s employment with respect to the minimum wage is −1, which is large within the context of the existing literature.

We next estimate the effects of binding minimum wage increases on low-skilled workers’ incomes. The 2008 SIPP [Survey of Income and Program Participation] panel provides a unique opportunity to investigate such effects, as its individual-level panel extends for 3 years following the July 2009 increase in the federal minimum wage. We find that this period’s binding minimum wage increases reduced low-skilled individuals’ average monthly incomes. Relative to low-skilled workers in unbound states, targeted individuals’ average monthly incomes fell by $90 over the first year and by an additional $50 over the following 2 years. While surprising at first glance, we show that these estimates can be straightforwardly explained through our estimated effects on employment, the likelihood of working without pay, and subsequent lost wage growth associated with lost experience. We estimate, for example, that targeted workers experienced a 5 percentage point decline in their medium-run probability of reaching earnings greater than $1500 per month.

This is from Jeffrey Clemens and Michael Wither, “The minimum wage and the Great Recession: Evidence of effects on the employment and income trajectories of low-skilled workers,” Journal of Public Economics, Vol. 170, February 2019. The article is gated.

Clemens and Wither explain in the piece the difference between “bound” and “unbound” states. Bound states are states that had a minimum wage that was below $6.55 an hour on January 2008. Unbound states were states for which that was not true. The idea is that the closer the state’s minimum wage was to $7.25 before the federal minimum was raised from $5.15 to $7.25, the less binding was the law."