What do we know about the long-term Impact of minimum wage increases?

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When Minimum Wage is increased by more than 5%, studies have shown a negative impact for one to three years - job loss, reduction of hours, and non-hiring to replace workers leaving - causing a reduction of pay of low pay workers, a 1-3% reduction in teenager hired, and failure of many start-up businesses. I have not found longitudinal studies showing where the economy rebounds from these losses and whether there is a long-term benefit at all for the lower or higher wage workers. Has there been studies going longer showing when the (a) teenage hiring returns to previous levels, (b) hours return to normal for the low pay workers, etc... Is Minimum Wage a permanent negative impact or temporary? ... I've seen what happens statistically for things like holidays - where a sick person will power through the holidays, but then die immediately thereafter, creating an average between "less deaths during the holiday" and "more death just following" matching normal death rates. And studies which show that capital punishment creates a permanent troth with an immediate reduction of several months after a criminal has been executed without a rebound increase afterwards ... just a return to normal levels. .... So which is it, a permanent loss to the economy when we have minimum wage raised that never recovers; a temporary loss to the economy which returns to the previous level but no further; a temporary loss to the economy but a rebound that balances and then return to average; OR a temporary loss to the economy but a long-term gain once everything is considered? Everything I have found indicates a permanent loss to the economy with no upside and that just doesn't make sense to me as yet. If there are longer studies, I would appreciate finding out about them. Asking because I would like to support a higher minimum wage, especially for tip-income wages, but based on the evidence I have found I cannot.

Answer: 

The adverse effects of the minimum wage depend on how high it is compared to the prevailing wage in the area.  Because wages are higher in San Francisco than Des Moines, a $15 minimum wage in San Francisco, where the median wage is $25.11, is the equivalent of an $11.76 minimum wage in Des Moines, where the median wage is $19.69, or a minimum wage of just over $10 in rural Iowa.  A $15 minimum wage would be disastrous in rural Iowa and would only have small effects in San Francisco.  How long the negative effects of minimum wage lasts depends on whether it changes over time or stays fixed.  Our national minimum wage has not been adjusted since 2009 (see the figure below) and its purchasing power has fallen 16% since then.  The 10% increase in the minimum wage in 2009 lowered employment by about 1% relative to what it would have been without the increase.  This modest negative effect on employment dissipated over time as inflation and labor productivity increased prevailing wages and lowered the minimum wage relative to the median.  However, if the minimum wage were to rise every rises every year, as it would if it were indexed to inflation for example, then the negative effects would persist.

 

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Last updated on March 2, 2020