Policy Studies Economic Mobility

Job-destroying effects of $15 minimum wage by metro, industry and occupation

The attached policy study was co-authored by Zackary Hawley, assistant professor of economics at Texas Christian University.

With a host of states and municipalities implementing large minimum wage increases, the federal minimum wage has made its way back into the national conversation. Advocates of a higher minimum wage make the argument that wages have stagnated for many Americans, not keeping pace with cost-of-living increases. Thus, advocates contend, the government should step in on behalf of workers and set a higher minimum level of compensation.

Opponents of minimum wage legislation typically point out that these policies cause employment loss, while alternative policies—such as increasing the Earned Income Tax Credit—would work better to alleviate poverty and improve job opportunities. Other critics of a higher minimum wage argue that policies to promote economic growth are the only sustainable solutions to rising living costs. An overlooked aspect of any change to the federal minimum wage is that it would have differential effects across American cities and industries that have different existing policies and labor-force characteristics. Studies of minimum wage policy proposals typically produce estimates of national job loss, but ignore that job loss from a minimum wage would be vastly different across the many varied labor markets and metropolitan areas.

We examine how a federal minimum wage increase would affect different proportions of workers across metropolitan areas and across industries, resulting in differing labor-cost increases for employers. Using labor-elasticity estimates from the vast empirical literature on prior minimum wage changes, we estimate how a $15 minimum wage would translate into employment losses across the distribution of cities and industries in America.

Our estimates are based on industry-specific wage distributions from 414 metropolitan areas across 22 broad industry categories and 750 detailed industries, originating from the U.S. Bureau of Labor Statistics. We show where a $15 minimum wage disrupts the unique wage distribution of each metropolitan area and industry and use this calculation to show both national job loss and the heterogeneity in job losses that would result.

Select states and municipalities have already legislated hourly minimum wages of $15, and a $15/hour minimum wage was officially included as part of the Democratic Party platform in 2016. Seattle will be the first major city to implement a $15 minimum wage, with the regulation taking effect for employers with 500 or more employees in January 2017. New York City is scheduled to implement a $15 minimum wage by December 2018; San Francisco in July 2018; Washington, D.C and Los Angeles in July 2020; and all of California by January 2022.

States and localities legislating $15 minimum wages have one thing in common: they all are in the upper echelon of the cost-of-living and earnings distributions. This means a $15 minimum wage in these areas will not have nearly the impact on local labor markets that it would in lower-wage areas in the Midwest and the South. The federal minimum wage doesn’t have this flexibility; it applies uniformly to all municipalities, regardless of local income distributions. This means raising the federal standard would end up destroying a larger percentage of jobs in low-cost areas than it would in the sorts of high-cost areas that already are adopting high minimum wages.

The rise in the cost of labor under a $15 hourly minimum wage would result in substantial job loss, with significant variation across industries and cities. The New York metropolitan alone would lose approximately 170,000 jobs, while Los Angeles, Chicago and Houston each would lose more than 100,000 jobs. Nationally, 1.7 million workers in the food preparation and serving industry would lose their jobs, while more than 900,000 workers in office and administrative support occupations would lose their jobs. Perhaps the worst consequence of a $15 hourly minimum wage would be that job losses would be concentrated among the very poorest workers. In Miami, 27 percent of job losses would be concentrated among workers in the bottom decile of the wage distribution, while 34 percent of job losses in New York would be concentrated among the poorest 10 percent of earners.

Image by a katz

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