“Minimum wages reduce the employment of low-skilled workers—a group disproportionately represented by immigrants, inner-city minorities, and young people. Some workers lose jobs altogether, while others see their hours reduced. This doesn’t mean that there are no beneficiaries of higher minimum wages. Economic theory predicts that some workers who are currently employed will retain their jobs with no reduction in hours, even after the minimum wage is increased. For those workers, the increase means higher take-home pay, although the jobs themselves might become more demanding or less secure.
So, what do we know about raising the federal minimum wage to $15, even gradually? In theory, we know a lot, but the empirical evidence is limited since so few states and localities have tried it. There are, however, some noteworthy attempts to get a good grasp of what might happen.
First, the Congressional Budget Office estimates that a $15 minimum wage by 2025 would eliminate 1.4 million jobs over that period. The CBO also forecasts that this increase could decrease business income, increase consumer prices and tap the brakes on the economy.
Second, economists at the University of Washington studied the employment effects of Seattle’s move to gradually increase its minimum wage to $15. Seattle, already a high-wage city, first raised its minimum wage to $13 in 2016 and hiked it to $15 in 2021.
Summing up the findings in Seattle, Michael Strain writes in Bloomberg: “The economists found that this led to a 9% reduction in low-wage jobs. The pay increase it generated didn’t make up for the reduction in employment, and earnings fell for low-wage workers overall. The economists’ subsequent research found that the gains from the higher minimum wage accrued to more experienced workers.” As I noted, there are some winners (those who are already relatively better) and some losers (those already worse off). In a recent Twitter thread, one of the authors of the study, Jake Vigdor, noted that the following pattern emerges for employers dealing with higher labor costs: “1) Don’t lay people off 2) Cut back hours 3) Cut back hiring 4) As workers quit, restore hours for those who remain.” He also warns that the negative employment effects are somewhat understated in the study because it ignores “a subset of the workforce: those who didn’t have jobs at baseline, before the wage increase.”
Workers who didn’t have a job at the time of the increase and won’t get one after may pay the steepest (and unseen or overlooked) cost of the minimum wage. As Williams explained in his autobiography, “Early work experiences not only provide the pride and self-confidence that comes from financial semi-independence but also teach youngsters attitudes and habits that will make them more valuable and successful workers in the future.””