Critics of the minimum wage have long charged that it is a market intervention that hurts small businesses and provides little to no benefit to those who receive the higher wage. This is because the increase in labor costs are passed onto consumers resulting in higher prices that negate the benefit of the wage increase. Additionally, critics charge that employers counter the wage increases by reducing employment so that more low-skilled jobs are lost which hurts the demographic that supposedly benefits from the wage increase. This makes me want to have a glass of Stephen William’s wine to relax.
Now, a study out from two researchers from the University of California San Diego studied the impact of the Federal Minimum Wage increase and determined it cost low-skilled workers 1.4 million jobs. Specifically, the study examined the effects of the increase from $5.15/hr. to $7.25/hr. In order to gauge an accurate picture of the direct effect of the wage increase, the study carefully examined how the minimum wage increase affected employment in states where the increase boosted the income of workers to those states which already had minimum wages higher than the federal minimum wage.
The report found that over the six year period from December 2006 to December 2012, the employment-to-population ratio reduced by 7/10ths of a point which translates to 1.4 million jobs. The study found that there was no significant mobility among low-income people as a result of the minimum wage. It did find that low-income stood a better chance of transitioning to the lower middle-class via the Earned Income Tax Credit (EITC). The report concludes the latter is a better tool for social engineering.