Higher minimum wage seems like a good thing, right? It’s supposed to provide low-income workers with larger paychecks. But in reality, the hike in minimum wage rates may have unintentionally slowed employment and sent more workers looking elsewhere for jobs.
According to Investor’s Business Daily, when Washington D.C., Oakland, Los Angeles, San Francisco, Seattle, and Chicago started paying low-skilled workers more, job creation dropped to its slowest in the last five years in the leisure and hospitality sector. Many minimum wage jobs fall within this field, which includes restaurants and hotels.
In Washington D.C., minimum wage increased from $8.25 to $9.50 and then $10.50. Data shows that whereas 2,000 jobs were added in the fourth quarter of 2014, during that same time period in 2015, zero jobs were added.
When San Francisco and Oakland bumped their minimum wages to $12.25, the highest in the country, employment rates for the fourth quarter dropped from 4.7 percent to 2.5 percent. And yet in the rest of California where minimum wage was around $3.25 less, employment grew by 4.8 percent last year. The results were similar for other cities where minimum wage increased.
Economist Joan Monras from the Paris Institute of Political Studies set out to explore the impact of higher minimum wage on employment. He examined whether raises in minimum wage rate led low-skilled workers to head toward better paying cities to find jobs or away from them. The results are somewhat surprising. According to Monras:
A 1 percent reduction in the share of employed low-skilled workers [following a minimum wage increase] reduces the share of low-skilled population by between .5 and .8 percent. It is worth emphasizing that this is a surprising and remarkable result: workers for whom the [minimum wage] policy was designed leave the states where the policy is implemented.
Fewer jobs are being created and there is still high demand for them by job seekers. When low-skilled workers move to areas where salary is not as high, they may have more opportunity.
While raising minimum wage may help those who are already employed in these positions to earn more (as long as their jobs are not cut), it may be making it more difficult for those looking for jobs to find them.
This is not exactly good news for younger generations seeking to gain work experience before pursuing higher education, or for those who do not have training beyond high school. The same policies that should be helping them to save money for the future or live above the poverty rate are actually having an adverse effect. This could make it more difficult for young adults to get ahead and attempt to keep their debt lower.