What society pays in consequences for a higher minimum wage

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Over the past decade or so, dozens of state and municipal governments across America have enacted good-sized increases in local minimum wages. Whatever its other effects on employment levels, this progressive policy innovation has definitely put economists to work.

For years number crunchers have feverishly been studying how employers and workers have responded to and been affected by minimum wage hikes. The results have been sometimes encouraging, sometimes worrisome and almost always complicated.

Four years ago, I published a column in this space titled “A new consensus on the minimum wage? Yes, but … .” It wrapped up a series of columns that had sampled the outpouring of research set off by the wave of local minimum wage boosts that began in around 2014.

The various localized increases (the federal minimum wage hasn’t changed since 2009) created a wealth of “natural experiments” — situations where scholars have been able to compare employment shifts and other trends in communities that are a lot like one another, except that some boosted minimums while others did not.

Evidence that it’s time to revisit this still bustling real-world laboratory comes in a recent post on the always valuable Marginal Revolution blog. It’s titled, as it happens, “The New Consensus on the Minimum Wage.” Economist Alex Tabarrok notes several provocative new studies that add to the same complex verdict on minimum wages I tried to describe in 2021.

I noted then that an earlier era’s consensus among economists — which peaked some 40 years ago — had held that minimum wage increases, at least large ones, inevitably reduce employment opportunities for lower-wage, lower-skill workers. But by 2021 that once-settled view had “changed a reasonable amount,” according to Timothy Taylor, an economist at St. Paul’s Macalester College and managing editor of the distinguished Journal of Economic Perspectives, which had just published a symposium on the new thinking.

Basically, the “new consensus” was and remains that it turns out to be more difficult than expected to identify widespread job losses when mandated minimum wages rise. Instead, researchers are finding that employers forced to pay higher wages find sundry other ways to deal with rising costs, from price increases to cuts in employee benefits and changes in working conditions. And while the overall number of jobs changes little, particular populations of workers may be displaced and disadvantaged.

We’re dealing here with a fundamental complication in the making of all social policy. Human beings inconveniently refuse to sit still and be experimented on. “If the price of oil rises, oil doesn’t change,” Taylor explained in 2021. “But both workers and employers will change their behavior when wage levels change.” And that makes it hard to be sure whether higher minimum wages produce overall net benefits to workers — or to which workers.

In his new blog post Taborrok cites one of the papers in Taylor’s 2021 journal collection. In it Jeffrey Clemens of the University of California explained that low-wage workers — the main intended beneficiaries of minimum wage hikes — spend an oversized part of their incomes on just the kinds of goods, food especially, whose prices are most inflated by minimum-wage hikes. This blunts the workers' gains from bigger paychecks.

Last month Clemens and colleagues were out with a new paper, this one looking at the effects of higher minimum wages on one particularly vulnerable group of workers — those with severe disabilities.

They write: “We find that large minimum wage increases significantly reduce employment and labor force participation for individuals of all working ages with severe disabilities … . By contrast, we find no employment effects for all but young individuals with either non-severe disabilities or no disabilities. Our findings highlight … concerns about labor market policies’ unintended consequences for populations on the margins of the labor force.”

Unintended consequences also may be disadvantaging a much larger group, according to a November 2024 paper from David Neumark and Jyotsana Kala of the University of California. They “find evidence that job loss effects from higher minimum wages are much more evident for blacks, and in contrast not very detectable for whites.”

Noting that “despite the very large literature on employment effects of minimum wages for low-skilled workers, race differences in employment effects have received little attention,” these researchers conclude: “[W]e do not believe higher minimum wages are enacted to harm blacks, or with knowledge that the benefits may accrue mainly to whites. But our evidence indicates that … the unintended consequence is that blacks appear to bear a steep cost, while whites bear very little cost and more likely benefit.”

Meanwhile, a central thrust of the “new consensus” still holds that important consequences from costlier wage mandates may involve features of the workplace beyond the number of jobs. Several recent studies explore whether higher minimum wages affect employee safety — and find that injury rates increase along with labor costs.

Michael Davies of MIT and colleagues write: “We find that a 10% increase in the minimum wage increases the injury rate by 11% in [a] … labor market which is fully exposed to the minimum wage increase.” An “intensified pace of work” is the primary cause, they conclude, although other new research has blamed reduced investment in safety equipment, maintenance and training. What’s clear, the researchers caution, are “the complex interactions between … worker and firm adjustment to minimum wage shocks … . [P]olicymakers … may want to consider the potential countervailing effects of minimum wage hikes on worker welfare, and develop policy accordingly.”

While they’re at it, policymakers may even want to ponder a particularly frustrating possibility, revealed in a 2023 study from Zachary S. Fone at the Air Force Academy and colleagues. Exploring the hope that “improved local labor market opportunities for low-skilled individuals may reduce criminal behavior by increasing its opportunity cost” they found instead that “a 1 percent increase in the minimum wage is associated with a 0.2 percent increase in property crime arrests among 16-to-24-year-olds.” Despite the limited broad effects on employment rates, the researchers explain that “minimum wage-induced job loss may be a mechanism to explain increases in larceny arrests.”

The good news in the new minimum wage consensus remains that job losses are not as severe as once expected. The bad news is that while the labor market interactions are complex, the alluring political appeal of ever larger minimum wage hikes is simple and tempting — producing costly unintended consequences for the very people we’re trying to help.

D.J. Tice is a retired commentary editor and an opinion columnist for the Star Tribune. He also served seven years as political news editor. He has written extensively about Minnesota and American politics and history, economics and legal affairs.