We next estimate the minimum wage increases’ effects on low-skilled workers’ incomes and income trajectories. We find that binding minimum wage increases reduced low-skilled individuals’ average monthly incomes. Targeted workers’ average incomes fell by an average of $100 over the first year and by an additional $50 over the following two years. While surprising at first glance, we show that the short-run estimate follows directly from our estimated effects on employment and the likelihood of working without pay. The medium-run estimate reflects additional contributions from lost wage growth associated with lost experience and training.
Because most minimum wage workers are at early stages of their careers, lost opportunities for accumulating experience can be quite costly. We provide direct evidence that such losses translate into meaningful reductions in upward economic mobility. Two years following the minimum wage increases we study, low-skilled workers had become significantly less likely to transition into higher-wage employment in bound states than in unbound states. Over this recent historical episode, the minimum wage’s effects on career paths thus appear to be quite important.
As my AEI colleague Stan Veuger notes, “the 14% employment decline identified by Clemens and Wither works out to some 1.4 million people, ” a staggering figure during a once-in-a-lifetime economic crisis, and hopefully a sufficiently strong warning for those considering more of the same poisonous medicine.” Is there a better way. Again, Clemens and Wither:
We conclude by emphasizing that the minimum wage is one among many policies that seek to improve low-skilled workers’ incomes. Most notably, the Earned Income Tax Credit (EITC) has been used for precisely this purpose, and to great effect, for several decades. Research on the EITC seemingly uniformly recommends it as a tool for increasing the employment and incomes of low-skilled workers (Eissa and Liebman 1996, Eissa and Hoynes 2006). By supplementing incomes without burdening employers, it has meaningfully offset some of the inequality-inducing trends discussed above (Liebman 1998). Our evidence augments the case for shifting attention away from the minimum wage and towards the EITC as a means of improving the well-being of low-income households.LINK