The Harvard Business Review reports on a new minimum wage study that should give pause to proponents a higher mandated wage floor. While the issue may not be top-of-mind in Washington, where minimum wage hikes have become a settled issue in the state’s largest cities and embraced by voters statewide, the results of the research are nonetheless relevant. Here’s the summary:
While proponents of increasing the minimum wage have grown increasingly vocal in the U.S., new research suggests that raising the minimum wage can actually have a significant negative impact on the total compensation of hourly workers. Researchers analyzed a detailed dataset of wage and scheduling data for more than 5,000 employees at a single national retailer, and compared outcomes for workers in California (which had several minimum wage increases during the study period) and Texas (which had zero increases). They found that in the stores that experienced a minimum wage hike, workers on average worked fewer hours per week, were less likely to qualify for benefits, and had less-consistent schedules. These factors corresponded to an average 11.6% decrease in total compensation for every $1 increase in the minimum wage. Based on these findings, the authors argue that policymakers should consider minimum wage hikes with caution, and should be sure to complement them with policies designed to ensure consistent schedules and adequate hours for workers — or risk harming the very people they’re aiming to support.
Some of these outcomes were discussed in a still-pertinent Washington Research Council report published in 2015. The WRC concluded:
Minimum wages have been consistently shown to reduce employment and mobility. If the goal is poverty reduction, there are much more efficient and targeted methods. Still, the Legislature is considering a bill that would increase Wash- ington’s minimum wage, even though it is already the highest in the nation.
Increases in the minimum wage are a tradeoff. Some gain, but many lose. Those who keep their jobs and their hours benefit. But those employees who lose their jobs or have their hours re- duced lose out. Research shows that the negative impacts on individuals and busi- nesses are real and long-lasting. These impacts are made worse by other labor mandates (like paid sick leave) and Washington’s generally high business costs. In the end, if Washington businesses and entrepreneurs can’t afford to maintain or create jobs, lower-skilled workers on the bottom end of the pay scale are the ones that suffer most.
The recent study, by Qiuping Yu, Shawn Mankad, and Masha Shunko – all academics specializing in operations management (Shunko is with the Foster School of Business at the University of Washingt0n) examines employer responses to wage increases.
…we conducted a study in which we leveraged a highly granular dataset of worker scheduling data from a national fashion retailer in the U.S. to compare scheduling differences in states with different minimum wage histories. Specifically, we looked at worker schedule and wage data from 2015 to 2018 for more than 5,000 employees at 45 stores in California — where the minimum wage was $9 in 2015, and has increased every year since then — and at 17 stores in Texas, where the minimum wage was $7.25 for the duration of our study. We then controlled for statewide economic and employment differences between California and Texas in order to isolate just the impact of increasing the minimum wage.
…we found that increasing the minimum wage had no statistically significant impact on the total number of labor hours employed at a given store. In other words, stores hired workers to work for the same overall number of hours regardless of whether minimum wage increased.
However, our data suggests that the way in which those hours were allocated among workers did change. For every $1 increase in the minimum wage, we found that the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decrease by 20.8%. For an average store in California, these changes translated into four extra workers per week and five fewer hours per worker per week — which meant that the total wage compensation of an average minimum wage worker in a California store actually fell by 13.6%.
This decrease in the average number of hours worked not only reduced total wages, but also impacted eligibility for benefits.
… our data suggests that the combination of reduced hours, eligibility for benefits, and schedule consistency that resulted from a $1 increase in the minimum wage added up to average net losses of at least $1,590 per year per employee — equivalent to 11.6% of workers’ total wage compensation (and this is assuming that workers were able to use their reduced hours to work a second job — an assumption which may not hold true for many employees).