New Study: Past New York Wage Hike Caused Substantial Job Loss

Over 20 Percent Reduction in Employment for 16-to-29 Year-Olds Without a Diploma
  • Publication Date: January 2012

  • Topics: Minimum Wage

Today, the Employment Policies Institute (EPI) announced a new study forthcoming in the April issue of Industrial and Labor Relations Review, which finds that the last state-legislated New York minimum wage increase had a substantial negative impact on the employment of 16-to-29 year-olds without a high school diploma. Specifically, employment for this group fell by 20.2 to 21.8 percent due to an increase in the state minimum wage.

The study was authored by economists Richard Burkhauser (Cornell University), Benjamin Hansen (University of Oregon), and Joseph Sabia (San Diego State University). It was supported, in part, by EPI.
“Our results suggest that future increases in New York’s minimum wage would likely reduce opportunities for the least-skilled and least-experienced members of the state’s workforce–the same people that advocates purport to help,” said Sabia.

The New York State legislature voted to increase the state’s minimum wage from $5.15 to $6.00 an hour on January 1, 2005, from $6.00 to $6.75 on January 1, 2006, and from $6.75 to $7.15 on January 1, 2007. To determine the impact of the minimum wage increase, the authors examine employment trends in New York between 2004 and 2006, as compared to three geographically proximate states—Pennsylvania, Ohio, and New Hampshire—which did not raise their minimum wage over that time period.

This study is also the first minimum wage study to make use of a cutting-edge “synthetic control” design, which provides certainty that the measured job loss is due to the higher minimum wage and not unrelated state economic trends.

The authors’ results suggest that the employment effects of a higher minimum wage are not always small. Past estimates suggest a 1 to 3 percent drop in employment for less-skilled employees for each 10 percent minimum wage increase. However, this study’s findings imply a 7 percent drop in employment for young high-school dropouts for each 10 percent increase in the minimum wage.

“The findings of this study should give pause to well-intentioned legislators in Albany seeking to further raise the state’s minimum wage,” said Michael Saltsman, research fellow at EPI. “With an unemployment rate for young adults that’s currently averaging above 24 percent, the state can scarcely afford a policy that makes it even tougher for this inexperienced group to find work and enhance their future earning potential.”