How Higher Minimum Wages Impact Employment

As the article points out at the very beginning, the debate about the effect that raising the minimum wage has on employment is currently not resolved, and research is still ongoing. Millsap does, however, review in this article a study (conducted by Paul Beaudry, David Green, and Ben Sand) that definitively concludes that minimum wage increases lead to lower employment in the long run. In numerical terms, the study found that a 1% increase in the wages leads to an employment decline of 0.3-1%; the range exists due to varying effects from wages being raised citywide or in only one industry.

The framework used by the authors is of three cities - Seattle, San Francisco, and Los Angeles - that recently raised their minimum wage to $15. San Francisco is a relatively higher-wage city so fewer workers and firms are affected in contrast to Los Angeles, which is a relatively lower-wage city. This makes sense since minimum wage workers in a higher-wage city would already be close to earning $15 per hour while someone in a lower-wage city earning a minimum wage of $10 will face a drastic change. Firms in the latter scenario will have much greater pressures applied to them and may even close down, a conclusion that another study mentioned in the article also reached. The last article I posted on this blog was about Target raising its minimum wage to $13 after increasing it to $12 the previous year, and now this article has me thinking about the long-term employment effects of doing that. Perhaps that might be the correct method going about it: gradual increases to the minimum wage to ensure that the long-term employment decline is not steep.

Article link: https://www.forbes.com/sites/adammillsap/2018/09/28/how-higher-minimum-wages-impact-employment/#1db280401e7d