Raising the Minimum Wage for Working Men and Women in California and the Rest of America

The “Ripple Effect” of a Minimum Wage Increase on American Workers

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U.S. policymakers continue to engage in an active debate over the minimum wage. Calls for minimum wage increases—at the federal, state, and local levels—are based on the premise that rises in the minimum wage will improve the economic well-being of low-paid workers. This has become an important policy prescription in movements to combat poverty.

One area of focus in the debate is whether a minimum wage increase would actually affect many workers. Some skeptics have argued that only a very small share of workers actually receive the minimum wage, and furthermore, that many of those workers are not struggling adults, but rather teenagers from affluent families. Understanding the magnitude of the impact of a federal or state-level minimum wage increase on workers is an important first step in informing the policy debate.

The argument that only a small share of workers is actually paid the minimum wage misses a key point: many of those who would be impacted by a raise in the minimum wage are actually low-wage workers making slightly above the minimum wage. In addition to this broader scope of the workforce, economist Arin Dube of the University of Massachusetts-Amherst points out that a shrinking share of low-wage workers is comprised of teenagers. His work shows that among those earning no more than the federal minimum wage of $7.25 in 2011, fewer than a quarter were teenagers. Among those earning less than $10 an hour, only 12 percent were teenagers, as compared to 26 percent in 1979.

In this month’s Hamilton Project economic analysis, we consider the likely magnitude of the effects of a minimum wage increase on the number and share of workers affected. Considering that near-minimum wage workers would also be affected, we find that an increase could raise the wages of up to 35 million workers—roughly one-third of the American workforce. For the purpose of this analysis, we set aside the important issue of potential employment effects related to minimum wage increases, which is another crucial element in the debate about an optimal minimum wage policy. We also continue to explore the nation’s “jobs gap,” or the number of jobs needed to return to pre-recession employment levels.

• Category: National • Tags: Benjamin H. Harris, Melissa S. Kearney