Study: Minimum Wage Hikes Harm Low-Skilled Workers

AP Photo/Jim Mone, File
AP Photo/Jim Mone, File
Washington, DC

At the beginning of the year, 20 states boosted their legally mandated minimum hourly wages. The hikes were the result of recently passed legislation or automatic inflation adjustments set into law. A new study, however, adds to the decades of economic research showing that such moves harm low-skilled workers, the very people such laws are intended to help.

New research from the University of California at San Diego looked at the impact of minimum wage hikes across the country beginning in 2009, after the official end of the last recession. The increases were the result of a boost in the federal minimum wage and states’ independent legislative action. The hikes significantly reduced the employment of low-skilled workers. The loss of work was far greater in those states which had the biggest increases in the mandated minimum wage.

Interestingly, the states which were required to hike their wages the most and experienced the most significant employment loss had less severe impacts from the housing crisis than states that didn’t experience large increases in their minimum wage. In other words, states with less negative impact from the recession still experienced higher employment loss among low-skilled workers because of the wage hike.

This new study confirms what decades of prior research and common sense tell us. When government increases the “price” of the lowest-skilled jobs, those workers with the least skills will have a harder time finding employment. Tragically, these workers are most in need of the “help” offered by politicians and pundits in support of higher minimum wages.

The new research found that the higher minimum wages on their own lowered the employment-to-population ratio of working adults by 0.7 percentage points. This is a 14% employment decline, throwing 1.4 million workers out of jobs. It is important to remember these adults have the least skills and will have a difficult time rejoining the labor force.

Minimum wage hikes remain popular with politicians and most of the public, largely because they involve relatively few people, and their effects are hard to see. An increase in self-checkout lanes in many stores doesn’t advertise itself as a consequence of higher minimum wages, for example. Even if jobs don’t disappear, higher minimum wages attract workers with higher skill and education levels, many the second- or third-earner in a family, and crowd out those with less education or fewer skills.

Despite this and an overwhelming amount of other research detailing its negative employment effects, Democrats are expected to continue to make higher mandated minimum wages a focus of their economic policy. The party seems permanently stuck in the 1970s, peddling outdated policies, no matter their consequences or relevance to people’s lives.

Most people are not impacted by higher minimum wages. Those who are, however, have the least ability to adjust to the policy change. In fact, the people most negatively impacted by mandated hikes are the very people those hikes are intended to help.