How Have Minimum Wage Hikes Affected Job Growth in States and Cities?

A frustrating thing about the minimum wage debate is that it often plays out in a theoretical void. Some economists tout models that say pay hikes are a jobs killer, others present models that show the opposite.

There's an easier way to resolve this debate: Just look at what's happened in the many places where the minimum wage has been raised in recent years. There is no shortage of laboratories: 21 states have now raised their minimum wage above the federal level, often through a series of hikes over time, and a number of cities have also raised their minimum wage, including San Francisco, where all workers must be paid at least $10.74.

So forget the economists with their theories of how a higher minimum might play out; we should look at what's actually happened in the real world.

Two researchers -- Michael Reich and Ken Jacobs -- have been focused on exactly this question for the past 15 years, as many of these minimum wage hikes have taken effect, allowing them to measure the impact in real time.

So what have they found? The two shared some of their research recently in the New York Times: They write:

One city we have studied in detail, San Francisco, has passed a dozen labor standards laws since the late 1990s. After adding the effects of other local laws mandating employers to pay for sick leave and health spending, the minimum compensation standard at larger firms in San Francisco reaches $13. Our studies show that the impact of these laws on workers’ wages (and access to health care) is strong and positive and that none of the dire predictions of employment loss have come to pass.

They note that other research, on Santa Fe's wage floor of $10.66, found similar results. And as I have written here before, studies comparing adjacent states with different minimum wages have shown that higher wage states don't suffer lost jobs and growth.

The reason for this, Reich and Jacobs write, is that two things tend to happen when the wage floor is raised: first, employers save money from reduced turnover of workers which offsets the cost of higher wages; and second, they pass along some of the higher cost of labor to consumers in the form of higher prices. But those price hikes tend to be small enough that the pain is minimal. For example: "A 10 percent minimum wage increase adds 0.7 cents on the dollar to restaurant prices. Price increases in most other sectors, like retail, are too small to be visible, partly because retail pays more than restaurants."

These researchers make one other point worth mentioning: Cities are logical places to raise the minimum wage since the cost of living tends to be higher in urban areas. So it makes sense that Mayor Bill de Blasio would propose raising the minimum wage in New York City so it's higher than the rest of the state. Governor Andrew Cuomo quickly rejected that plan, but judging by the experience of San Francisco and Santa Fe, a higher city wage wouldn't make much of a difference for business. It would only be a big deal for low-wage workers.