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NewsFlash: November 27, 2006

States gain with higher minimum wage

Earlier this month, six states voted to raise their minimum wage above the federal level, bringing the total number to 29 of states unwilling to wait for the federal government, which has not raised its minimum wage since 1997. Now a study comparing states with a higher minimum wage to those without examines whether these wage hikes raise wages or cause job loss among groups sensitive to fluctuation in the minimum wage.

State Minimum Wages: A policy that works , by Paul Wolfson, and released today by the Economic Policy Institute, concludes that “wages are higher and employment is no lower” in states with a higher minimum wage than those without.

Dr. Wolfson, of the Tuck School of Business at Dartmouth College, compared states using the federal minimum wage with the 17 states and the District of Columbia which had raised their minimum wages from 1997 through the end of 2005. By the end of this period, the median minimum wage of these states was $1.40 (more than 25 percent) higher than the federal value. Applying statistical models to nationally representative data, Wolfson compared the effect that raising the minimum wage had on wages, employment, and labor supply for a number of groups, focusing on those groups most likely to be affected – including teenagers and those employed in the restaurant industry.

Conclusions

In some areas, small sample sizes made it difficult to find clear, statistically significant conclusions. However, the clearest effects are in the areas that follow:

• Among groups sensitive to fluctuation in the minimum wage, there was little effect on either employment or labor supply in states with a higher minimum wage, including teenagers and those employed in the restaurant industry.
• Minimum wage increases have a positive effect on wages.
• Raising the minimum wage increased wages without reducing employment or discouraging labor supply for teenagers (16-19).
• There is also evidence that minimum wage increases lead to higher wages without reducing employment or discouraging labor supply for young adults (20-24) and adults with no college education.

For more on the minimum wage, and states that have raised the minimum wage, go to EPI’s Minimum Wage Issue Guide.