Minimum Wage Basics: Employment and Business Effects of Minimum Wage Increases


While the U.S. economy continues to see steady growth, wages have been flat or falling for much of the labor force. This dynamic has spurred the most significant wave of action to raise the minimum wage in fifty years, with momentum for significant increases at the federal, state and local levels. The growing momentum for raising the minimum wage has focused attention on the impact of higher minimum wages on employment levels. Supporters argue that higher minimum wages help workers and the economy, and that research shows any adverse effect on jobs is minimal. Opponents, by contrast, generally contend that higher wages will reduce employment or slow job growth.

The fact that many states and cities in the U.S. have raised their minimum wages in recent years while others have not has created a rich store of data for research and analysis and has made the minimum wage one of the most studied questions in economics.

This brief reviews the extensive body of research on the impact of higher minimum wages in the U.S. over the past twenty years and draws these key findings:

  • The bulk of rigorous research examining hundreds of case studies of minimum wage increases at the state and local levels finds that raising the minimum wage boosts incomes for low-paid workers without reducing overall employment or job growth to any significant degree.
  • The minority of researchers reaching different conclusions rely on less precise or flawed methodologies that fail to take advantage of the most recent advancements in economic research.
  • Businesses are able to absorb the cost of paying higher wages without reducing employment through a range of channels, including savings from increased employee productivity and reductions in employee turnover that consistently result from minimum wage increases.
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