An increase in the federal minimum wage killed jobs during the Great Recession, according to a new study from the National Bureau of Economic Research.
From December 2006 through December 2012, increases in the minimum wage caused the national employment-population ratio to decline by about 0.7 percentage points.
In 2007, Congress passed the Fair Minimum Wage Act with bipartisan support. Eighty-two Republicans in the House voted in favor, as did 45 of the 49 Republican senators. The federal hourly minimum wage rose from $5.15 to $5.85 in July 2007 to $6.55 in July 2008, and reached the present level of $7.25 in July 2009.
Some states were not affected by the federal increase because they had already set their own minimum wages higher than the federal level. According to the study, the unemployment rate for low-skill workers in the affected states dropped by 6 percentage points more than in unaffected states. Average annual incomes fell by more than $1,800 for low-skill workers in the affected states.
Low-skill workers with some college education became more likely to work without pay after the minimum wage increase. This is preferable to unemployment, since the worker gains experience and skills they otherwise wouldn’t. Workers without any college education were not so fortunate. They simply became more likely to be unemployed.
The study also revealed how widespread the minimum wage’s disastrous effects are. Even though only 2.4 percent of American workers earn the minimum wage, minimum wage increases were responsible for 14 percent of the national decline in the employment-population ratio from 2007 through 2012.
The study was conducted by Jeffrey Clemens and Michael Wither at the University of California, San Diego and published by the NBER’s Working Paper series.
Clemens and Wither found that the minimum wage increase actually increased the likelihood of low-skill workers entering poverty. In contrast, the earned income tax credit has been a more effective method of reducing poverty. “Our estimates provide evidence that binding minimum wage increases reduced the employment, average income, and income growth of low-skilled workers over short and medium-run time horizons,” wrote Clemens and Wither. “By contrast, analyses of the EITC have found it to increase both the employment of low-skilled adults and the incomes available to their families.”
Between the time President George W. Bush signed the Fair Minimum Wage Act in May 2007 and the final increase in 2009, the Great Recession cost the economy more than 7 million jobs. The employment-population ratio fell by 3.7 percentage points to 59.3 percent, a 25 year low.
When the economy is poor, the minimum wage only makes it harder to find a job. Whether individuals have been been laid off or are just trying to supplement their low income, the minimum wage makes it difficult for a low-skilled worker to get work.
Despite all the arguments against it, minimum wage proposals typically enjoy popular support. But this study provides powerful ammunition for the argument that the minimum wage hurts most those it intends to help: poor, low-skill workers.
