What Happens When Minimum Wage Increases?

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Employees in the fast food industry are often paid minimum wage.
Employees in the fast food industry are often paid minimum wage. (Image: Stockbyte/Stockbyte/Getty Images)

When government announces an increase in the minimum wage, pundits generally take to the air to either denounce the hike as a job killer and an unfair burden to business or to defend the raise as the only way for the lowest earners among us to receive a fairer shake. What actually happens to employment levels after minimum wage increases has been the subject of considerable research.

Employment

Two Princeton researchers, Alan Kreuger and David Card, studied the New Jersey minimum wage increase of 1990. Comparing employment and wages in the fast food industry of New Jersey and Pennsylvania, where the minimum wage remained constant, the researchers found New Jersey fast food facilities actually increased employment. This bump in employment was consistent with research Kreuger and Card had conducted in other states with recent minimum wage hikes.

Additional Employment Effects

In addition to the post-hike increase in employment, the researchers found a “ripple effect” that boosted the wages of non-minimum wage earners, as well. Additionally, Kreuger and Card found no indication of employers reducing benefits as a way to compensate for the higher minimum wage or any change in the already-low usage by employers of teenaged workers. Though some conservative think tanks criticized the Princeton study, no peer-reviewed study has contradicted its findings.

Teens

According to a 2008 study by University of California-Berkeley's Institute for Research on Labor and Employment, raising the minimum wage does not reduce employment levels among teenagers, either. Analyzing data from the federal government’s Current Population Survey for the years 1990 through 2007, the study found no significant increase in unemployment among the nation’s teenagers because of minimum wage increases. Though the study did find a slight loss of hours worked by teens, the loss was offset by the wage increase.

County to County

Another Berkley study, "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," compared all counties bordered with counties that had different minimum wages between 1990 and 2006 and found no negative employment levels in the counties with higher minimum wages. The Berkley researchers believe a major reason minimum wage increases do not reduce overall employment is that the hikes attract and retain more workers, reducing companies’ vacancy rates. Additionally, they believe minimum wage hikes’ additional cost to employers is offset by reduced turnover and the resultant increase in productivity. According to the studies’ lead researcher, it appears that instead of being job killers, minimum wage hikes are actually vacancy killers.

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