CBER BusinEss BRiE
Who Lost JobsWhen the Minimum Wage Rose?
© 2010 Center or Business andEconomic Research, Miller Collegeo Business, Ball State University
Ball State UniverSity • Center for BUSineSS and eConomiC reSearCh
mc J. hcks, Pd
n September 2008 I estimated the eecto recent Federal increases to the mini-mum wage across states. In Indiana, the2008 increase in the minimum wage costthe state roughly 8,000 jobs. Since thattime, the state has plunged ar deeper intorecession and has begun a slow recovery.The minimum wage has again increased to$7.25 per hour. It is once again useul toevaluate the impact o this policy, in particu-lar ocusing on those whom the legislationimpacts.
The economics of The minimum wage
Economic theory is clear in its understandingo the minimum wage – it unambiguously reducesthe demand or labor, but only i the minimum wage is above the market wage or unskilled entry level labor. In practice, the minimum wage hasbeen ar beneath the going wage or unskilled, en-try level workers. Increasing the minimum wageat these levels would have no eect on employ-ment or wages. As a consequence, research nd-ings have ranged rom zero to modest job losses asthe minimum wage increases.
Unortunately, the latest round o minimum wage increases, which occurred in late July 2007,2008 and 2009, occurred rom the peak throughthe trough o the recession. Tese increases were,at 14, 12 and 11 percent respectively, the largestsince 1978 and the largest three-year percent-age change since 1950. Tese changes were notortuitously timed to have a benign eect onemployment. As a consequence, it is worthwhile to onceagain examine the impact the minimum wage hikehas had on employment. Repeating the modelo employment and minimum wage presented inSeptember 2008 we nd another 12,000 ewer workers in Indiana as a consequence o the mini-mum wage increase. But who were they?Casey Mulligan, a proessor at the University o Chicago, implicated the minimum wage in thesharp decline o part-time workers in the latter hal o 2009.
His analysis o the actual versus orecast-ed gap between part-time workers increased sharply in July 2009 when the most recent minimum wageincrease was enacted. Tis was surprising becausepart-time employment oten rises as ull-time em-ployment declines. Mulligan reports that the losso ve ull-time jobs during a downturn typically increases part-time employment by one position.Tis relationship stopped in July 2009.
The employmenT impacTof The minimum wage in 2008 and 2009
o test this, I created a statistical model which,like that presented in my 2008 minimum wagestudy, accounts or trends in employment, the re-cession and changes to the minimum wage. In my most recent model, the minimum wage increaseaccounts or roughly 550,000 ewer part-time jobsnow than would otherwise be the case without themost recent three minimum wage increases. Tisis a signicant decline, but still begs the ques-tion: Who are these workers? Earlier research hasindicated that teenage workers, especially minority teenagers, bear the bulk o minimum wage job
1. See Adie ; Brown, Gilroy and Kohen ; Card [1992a, b];Fleisher ; Hammermesh ; Meyer and Wise [1981, 1983a]; Minimum Wage Study Commission [ 1981]; Neumark and Wascher ;Ragan ; Vandenbrink ;Welch [1974, 1978]; [Welch and Cun-ningham 1978]. For efect on Arican- Americans see Al-Salam, Quester, and Welch , Iden , Betsey and Dunson Mincer , Moore , Ragan , Williams [1977a,b]. 2. See Mulligan, Casey, Attack o the Minimum Wage, Economix Blog, New York imes, January 20, 2010.
aBoUt the aUthor
Michael J. Hicks, PhD,
is the direc-tor o the Center or Business andEconomic Research and an associate proessor o economics in the Miller College o Business at Ball StateUniversity.Hicks earned doctoral and mas-ter’s degrees in economics romthe University o Tennessee and abachelor’s degree in economics romVirginia Military Institute. He has au-thored two books and more than 60 scholarly works ocusing on state andlocal public policy, including tax andexpenditure policy and the impact o Wal-Mart on local economies.Contact Dr. Michael J. Hicks at