New Study: Low-Wage Areas Can Afford $15/Hr Minimum Wage

Berkeley, Calif. July 2, 2019 – A $15 federal minimum wage will not create job loss in low-wage states in the U.S. but, in fact, will offer more opportunities for workers and their families to lift themselves out of poverty, a study released Tuesday by Anna Godoey and Michael Reich, economists at UC Berkeley’s Center on Wage and Employment Dynamics, shows.

This groundbreaking research comes as more than 40 cities and seven states are phasing in $15 standards, and the Raise the Wage Act of 2019 (HR 582) proposes to raise the federal minimum wage gradually—in six steps– from $7.25 today to $15 by 2024.

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Godoey and Reich drill down below the state level and use sub-state variation in wages that have mainly been ignored in minimum wage research, enabling the economics research to catch up to public policy. Their research examines what happens when the minimum wage rises closer to the median wage in counties across the US.

“The results of our research show that we can raise pay to $15, even in low-cost states. The data show that the minimum wage has positive effects, especially in areas where the highest proportion of workers received minimum wage increases,” said Godoey. “We also found reduced household and child poverty in such counties.”

Godoey and Reich did not detect adverse effects on employment, weeks worked or weekly hours among workers with a high school degree or less. They also did not find adverse employment effects among women and minority groups.

“These new findings considerably extend our knowledge of the effects of minimum wage increases in the lowest wage areas of the U.S.,” said Reich. “They suggest that a $15 federal minimum wage by 2024 will have widespread positive effects for working women and men, kids and communities of color, without any causing job loss.”

Since $15 in 2024 is equivalent to about $13 today, HR 582 would raise the minimum wage above its previous real minimum wage peak of about $11.80– achieved in 1968. A $15 national floor would also mark a new high of the federal minimum wage relative to the national median wage—of about 68 percent.

Previous research on recent state-level minimum wage policies does not extend beyond the $10 level; the highest studied state-level ratio of the minimum wage to the median wage– or relative minimum wage– is 59 percent. In a substantial number of U.S. counties, those with low median wages, relative minimum wages have already exceeded reached as high as 82 percent. Many, but not all, of the high relative minimum wage counties are in the 21 states that have remained at the federal minimum of $7.25 since 2009.

Godoey and Reich studied 51 minimum wage events that occurred in about 750 counties in 45 states between 2004 and 2016. They found that high impact counties— where minimum wages are high relative to median wages—are located throughout the U.S., in diverse settings that include low wage, middle wage and high wage states. Areas that already have high ratios of minimum wages to median wages include agricultural areas of California (think Fresno), Pennsylvania and Texas, upstate New York and much of Mississippi and Alabama.

Using state of the art statistical methods, they examined effects on hourly pay, employment, hours and weeks worked and poverty outcomes among workers who are most likely to work in minimum wage jobs: those with a high school education or less, and teens. They checked that their identification of the minimum wage’s causal effects was not confounded by other changes in the economy. For example, they conducted a test to check that the minimum wage comparisons are not contaminated by other changes that took place before the minimum wage change. They also checked that their models do not find effects for groups such as college graduates, who mostly do not work at minimum wage jobs.

“Godoey’s and Reich’s study provides a reasonable and creative approach to estimating the effects of minimum wage increases in the $15 range,” said David Weil, Dean and Professor at Brandeis’ Heller School for Social Policy and Management. “The paper fills a gap in the current literature, important given federal and state efforts to raise the minimum wage to that level. Although proposed increases to $15 an hour take us into new territory, the paper looks at the past to find instances of similar increases in relative terms (measured as the minimum wage increase relative to median wages) and minimum wage ‘bite’ (measured as the percent of workers affected by the new minimum wage) to estimate the impact of prospective increases of this magnitude. Their results indicate that those policies will improve earnings and reduce poverty, while having only modest impacts on employment, even in regions where the current minimum wage is $7.25.”

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The Center on Wage and Employment Dynamics (CWED) is a project of the Institute for Research on Labor and Employment (IRLE) at UC Berkeley. IRLE connects world-class research with policy to improve workers’ lives, communities, and society.