The vast majority of economists agree that minimum wage hikes create a tradeoff: lost jobs for some, but increased benefits for others. Recent research has investigated the losers in this tradeoff by examining the composition of job loss. After an increase, minority teens, welfare mothers, and other low-skilled adults are displaced from the workforce by middle-class teenagers who are lured to jobs by the higher wage.
In this paper, Florida State University economist David Macpherson identifies the beneficiaries of an increase. His findings on the 1992 New Jersey increase from $4.25 per hour to $5.05 per hour indicate that minimum wage increases do very little to help poor families. Rather, those helped by an increase tend to be young, single, and part of middle and upper income families.
Macpherson’s thesis — examined by means of the federal government’s 1991 and 1992 Current Population Survey (CPS) Outgoing Rotation Group (ORG) files — is that New Jersey’s minimum wage increase provided little benefit to those it was most intended to help. He finds that the annual family income of minimum wage workers increased by an average of just one percent following the increase. Moreover, fewer than 10% of those who benefited from the raise were in families making less than $10,000 a year. A full 70% were in families making more than $20,000 a year.
By documenting New Jersey’s failure to help the poor through raising its minimum wage, Macpherson demonstrates the wage’s inadequacy as a tool of income redistribution (a point stressed by Bill Clinton in his 1992 presidential campaign). Increased minimum wages dissolve work opportunities for the poor and least-skilled while infusing small, almost insignificant, sums into wealthier families — in New Jersey’s case, the average beneficiary of an increase lived in a family with an annual income of $38,873. Even the 10% of beneficiaries whose family incomes were below $10,000 saw their total family income increase by only 6.9% on average, or $337.
The majority of those on the positive side of the minimum wage tradeoff were young, single, and well above any government poverty threshold. Almost half the beneficiaries in New Jersey were younger than 25; 23.6% were between the ages of 16 and 19, and 20.6% were between 20 and 24. A full 55.9% had never been married. The average family with a minimum wage worker who benefited from the increase had an annual income of almost $40,000. Even the age group which the increase benefited most — those aged 25-34 — only saw a $482, or 1.6%, increase in family income.
Economic research has long shown that the poor and least skilled are often forced out of the workforce by a minimum wage increase. The new evidence presented on the following pages demonstrates that even those who benefit from an increase see very limited income growth.
