America’s great minimum-wage experiment — with scores of states and cities across the country hiking minimum-wage mandates to varying (often lofty) levels and with a varying array of exemptions and phase-in periods — is producing a proliferation of research into the effects. And it’s reaching, of course, varying results.
I’ve noted a few such studies here, and promised to keep an eye out for interesting findings as Minnesota, Minneapolis, St. Paul and other jurisdictions in these parts join the parade to implement or consider higher minimum wages.
In this as in much else, it’s vital to stay open to learning from evidence, especially at a time like this, when the “natural experiment” of so much rapid policy change enriches researchers’ opportunities to investigate what it leads to.
All of which is by way of saying that an impressive if somewhat dense new report delivers good news to proponents of higher minimum wages and should be noted particularly by those of us temperamentally inclined to be skeptical about redistributionist interventions in the marketplace.
The paper comes from researchers Kevin Rinz and John Voorheis of the U.S. Census Bureau (and reflects their views alone). They work for something called the Center for Administrative Records Research and Applications, which should perhaps prepare one for the methodological and technical jargon.
But noted economist Tyler Cowen, whose Marginal Revolution blog tipped me to the paper, calls it “one of the most thorough and detailed studies to date.” And the researchers’ conclusions are clear enough:
“[W]e find,” they write, “that raising the minimum wage increases earnings growth at the bottom of the [income] distribution, and those effects persist and indeed grow in magnitude over several years.”
It’s the focus on “earnings” growth among low-wage workers — and the fact that its acceleration “persists” — that is the special sauce here.
One of the main reasons it’s hard to measure whether minimum-wage hikes do more good or more harm, and for whom, is that employers forced to pay higher wages are likely to make adjustments — employing fewer affected workers (maybe by automating, maybe by going out of business or relocating), or cutting back employees’ hours, or hiring more-experienced people who become interested in minimum-wage jobs at the new higher pay rates — and so on. It’s not easy to measure how much such adjustments cancel out what low-wage workers gain from higher hourly pay.
Meanwhile, another line of research suggests that when minimum pay rises, turnover declines in low-wage jobs, which helps entry-level workers gain experience and skills and move up in the job market.
Rinz and Voorheis turn to Social Security data on the actual total earnings of individual workers over time to get a bottom-line “net” measurement that takes into account many adjustments and effects, many pluses and minuses, including periods of “disemployment” and “non-employment” and advances in the job market over a period of years.
They find that while the gains are largely limited to the very lowest-wage workers, “increasing the minimum wage leads to faster income growth … over the following one to five years” and the effects are “larger … over a five year horizon.” Meanwhile, higher minimums “do not on average have … subsequent negative effects that … reverse those gains.” They calculate that a 10 percent hike in the minimum wage produces a net average increase in earnings growth of 7 to 8 percent for very low-wage workers.
Rinz and Voorheis speculate that an important cause of their results is improved employment stability for many workers following a minimum-wage increase, producing for those employees “opportunities to move up the job ladder.” Another interesting potential cause they cite is that workers who happen to lose somewhat better-paying jobs and replace them at least temporarily with minimum-wage jobs don’t see their earnings fall quite so far if the minimum has risen — “raising the floor” under the overall earnings level.
What’s more, the researchers say, because gains from a minimum-wage hike are at first limited to the very-lowest-paid jobs, a degree of wage “compression” follows, with the gap between entry-level workers and those with more experience and skill closing somewhat. As time passes, employers may extend raises further up the scale “in order to re-establish distinctions … among workers.”
This could be another reason earnings growth could persist, at least for someone seizing those “opportunities to move up the job ladder.”
It may be worth noting that nothing in these results diminishes the clear advantages enjoyed by workers who possess what we might call “get up and go.” Although Rinz and Voorheis report no evidence that minimum-wage hikes directly cause increased numbers of people overall to migrate across state lines, they do find that those “individuals who are able to move across state lines capture the bulk of the income growth benefits of minimum wage increases.”
It’s a reminder that even the most sophisticated analyses of overall effects unavoidably mask the reality of winners and losers whenever economic forces shift, or are shifted by policy.
There will, of course, be other studies, and other findings. The most adventurous boosts in minimum wages have yet to take effect, so we can’t know how strong the “subsequent negative effects” of those may be.
But this evidence of deeper and more lasting benefits for many who receive minimum-wage boosts, making them more productive workers, deserves its share of attention.
D.J. Tice is at Doug.Tice@startribune.com.