July 28, 2014

Why have the US states with higher minimum wages gained more jobs?

US job figures released recently are giving hope to arguments that raising minimum wages encourages job growth.

The 13 American states that raised their minimum wages earlier this year are seeing job rates rise at a faster pace than those that did not.

From January through June this year, the states that raised minimum wages saw jobs increase by 0.85% on average, compared to the other 37 states which saw a 0.61% increase on average.

Some economists argue that six months of data is not enough to draw definitive conclusions. Stan Veuger of the American Enterprise Institute said: “It is too early to tell. […] These states are very different along all kinds of dimensions.”

However, even with this in mind, John Schmitt of the Center for Economic and Policy Research (CEPR) has commented that minimum wages are “probably a reasonable first cut at what’s going on.”

IZA World of Labor’s David Neumark has analyzed global evidence in detail, and has found that raising minimum wages does reduce the job pool in general.

He notes that research findings are not unanimous. The jobs that are most likely to decline with increased minimum wages are those which require low skills.

Our author David N. Margolis comes to similar conclusions, that the effects of minimum wages depend on context, capacity and institutional design.

Read more here.

Related articles:
Employment effects of minimum wages, by David Neumark
Introducing a statutory minimum wage in middle and low income countries, by David N. Margolis
Do labor costs affect companies’ demand for labor? by Daniel S. Hamermesh