[caption id=”attachment_85593″ align=”aligncenter” width=”512″] AP Photo/The Herald-Palladium, Don Campbell
[/caption]
An increase in the federal minimum wage led to a decrease in the number of jobs and hurt low-skill workers during the Great Recession, according to a new study from the National Bureau of Economic Research.
The study, titled “The Minimum Wage and The Great Recession” and conducted by Jeffrey Clemens and Michael Wither at the University of California San Diego, looked at the impact of the three federal minimum wages increases that occurred between 2007 and 2009.
In 2007, Congress passed the Fair Minimum Wage Act and the federal hourly minimum wage rose from $5.15 to $5.85 in July 2007 to $6.55 in July 2008 to the present level of $7.25 in July 2009.
“Between July 23, 2007, and July 24, 2009, the federal minimum wage rose from $5.15 to $7.25 per hour. Over a similar time period, the employment-to-population ratio declined by 4 percentage points among adults aged 25 to 54 and by 8 percentage points among those aged 15 to 24. Both ratios remain well below their pre-recession peaks,” the new study stated.
“Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers,” the study continued. “Lost income reflects contributions from employment declines, increased probabilities of working without pay.”
It was the very people this minimum wage increase was supposed to help that suffered the consequences, the report found.
Especially in a tough economic time like the Great Recession, the higher minimum wage made it harder to find a job overall.
According to the study, the unemployment rate for low-skill workers in “affected states” — states that didn’t already have higher minimum wages — 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 and the likelihood of low-skill workers entering poverty went way up.
Minimum wage increases also led to more individuals working without pay at all, an increase of about 12 percent from pre-2007 levels. While this primarily indicates more unpaid internships, the report stated, that “for low-skilled, low-education workers, the entire change in the probability of having no earnings comes through unemployment.”
The researchers promote the Earned Income Tax Credit as a better alternative to minimum wage increases because they increase the take-home pay without hurting employers and job growth. EITC is a refundable tax credit for low- to moderate-income workers.
“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. The EITC has also been found to significantly reduce both inequality and tax-inclusive poverty metrics, in particular for children. Evidence on outcomes with long-run implications further suggest that the EITC has tended to have its intended effects,” the researchers stated. “…This too contrasts with our evidence on the minimum wage’s effects.”
