Minimum Wage Study Turns Up Surprising Results
Is a higher minimum wage good for workers? You’d think so, but Aaron Yelowitz, a UK associate professor of economics who piloted a study of a recent minimum wage hike in Santa Fe, New Mexico, would answer the question by saying, “That all depends.”
“What we found is that the living wage hike to $8.50 an hour the city enacted in 2004 that applied to all private businesses was a good thing for most workers who kept the jobs they had. But this change had an extremely large and negative effect on those with less than 12 years of education,” explains Yelowitz, whose findings have been cited in The Wall Street Journal and numerous other publications and broadcasts.
Using mathematical estimations that utilized other areas of New Mexico to control for a variety of economic factors, this study found that after the wage hike, the likelihood of unemployment for employees in Santa Fe went up by 3.3 percent. For less-educated employees, however, the results were much higher, with their likelihood of unemployment increasing 8.3 percent.
If low-wage employees retained employment following the increase, one would expect a significant increase in wages in Santa Fe, Yelowitz reasoned, but there was no statistically significant increase in wages. “This suggests the possibility that less-skilled employees were replaced with more-skilled employees—already earning more than $8.50 an hour.” Also, he says, some lower-wage workers took home smaller paychecks because employers cut back on overtime in order to absorb the higher hourly rate they were required to pay.
“My research showed that Santa Fe’s labor market lost 540 jobs because of the wage hike, almost all of them among less-educated adults,” says Yelowitz. “Although minimum wages are intended to help poor workers, this was, unfortunately, not the case in Santa Fe.”—Jeff Worley