The Great Wage Experiment

January 18, 2022

Why are Virginia’s workers getting a big raise, but North Carolinians aren’t?

This month, hundreds of thousands of Virginia workers saw a big raise in their paychecks – but their direct counterparts here in North Carolina did not. The reason could help resolve, once and for all, the long-running debate about the relationship between minimum wages and job growth – and early signs point to bad news for opponents of raising the wage.

Update, 2/16: Labor market data through December 2021 is now available, and this post has been updated accordingly. The new data shows that job growth in higher-wage Virginia has only accelerated, while North Carolina’s has not.

A Great Experiment

In 2019, Democrats won control of the Virginia state legislature, sealing unified Democratic control of the Commonwealth for the first time in 26 years. Among their very first priorities upon assuming office in 2020 was raising Virginia’s state minimum wage. Democrats promptly passed a phased-in minimum wage hike, which will bring the state minimum to $15 an hour by 2026. As currently structured, the phase-in looks like this:

  • $9.50 effective May 1, 2021
  • $11.00 effective January 1, 2022
  • $12.00 effective January 1, 2023
  • $13.50 effective January 1, 2025
  • $15.00 effective January 1, 2026

(Republicans, who won control of the Virginia State House and governorship in 2021, have vowed to repeal the minimum wage hike. But because Democrats still control the Virginia State Senate, it is unclear whether they’ll actually be able to do so.)

Virginia’s conservative big business community, led by its state Chamber of Commerce and most Republicans, loudly opposed the 2020 minimum wage hike by predicting dire consequences for job growth, calling higher wages a “job killer.” They warned of massive layoffs, a cratering of small businesses, and a dimmer “business climate” that would send jobs to lower-wage states – like North Carolina, Tennessee, or Georgia. “The Chamber,” as it is known in most states, spent heavily on advertisements opposing the increase, only to see Democrats pass it anyway. 

This set up a large-scale natural experiment between Virginia and North Carolina, two states with comparable demographics and economic conditions, and which share deep and obvious historical similarities. North Carolina’s minimum wage has not budged, while Virginia’s has and will continue to do so. One may therefore examine each state’s economic track record for signs of impact.

On May 1, 2021, Virginia’s minimum wage rose 30%, from $7.25 to $9.50. Employment data is now in from the second half of 2021, which allows us to evaluate the minimum wage opponents’ claims that raising the wage would cost the Commonwealth jobs.

The result? Higher wages actually led to more job growth – not less.

Let’s Go to the Data

From May 2021 to December 2021 (the last month for which state-level data is available), Virginia’s unemployment rate dropped 1.3 percentage points, from 4.5% to 3.2%. In the same time, North Carolina’s unemployment rate dropped as well, but by only 1.1 percentage points, from 4.8% to 3.7%. (All figures are from the Virginia Employment Commission and NC Department of Commerce, respectively.)

Point to Virginia.

But wait – by definition, higher minimum wages are targeted to benefit low-wage workers, so we should focus on low-wage job growth in particular. If lower-wage job growth has slowed, then one could argue that a wage hike actually hurts low-wage workers instead of helps them.

Fortunately, there is data to address this question as well. We can examine job growth in the leisure/hospitality industry, where low-wage workers are very disproportionately clustered. If there is a job penalty to higher minimum wages, this industry is where we would find it. Yet once again, we do not. 

In Virginia, the leisure/hospitality job category saw an average of 1.8% growth per month in the last half of 2021, adding a net 25,300 jobs from June 1 to December 31. Compare this to North Carolina, where we saw only 0.7% growth per month in the same period, for a net addition of only 19,300 jobs.

Again – point to Virginia. 

The obvious early conclusion here is that Virginia’s minimum wage hike did not lead to job losses. It’s difficult to conclude that Virginia’s wage hike caused faster job growth all on its own (though we also cannot rule it out) – but we can, at least, conclude that it clearly did not hurt growth. On January 1st of this year, the Commonwealth’s minimum wage rose again to $11 per hour, from $9.50. We should continue to watch employment data to see if this trend continues.

Data updated through December 2021

It's Not Just Virginia

In 2022, half of the states in the country raised their minimum wages. 10 of these did so by statute - that is, their legislature passed a specific law to raise the wage. In 15 others, their state minimum wage is linked to automatic, regular increases for cost-of-living (inflation), or is pegged to the state median wage. These can be effective methods to lock in regular wage increases for those who need it most.

Precisely none of these states saw job losses, much less the massive layoffs predicted by conservative opponents. This is consistent with the volumes of economic research that have exhaustively studied the topic. These days, there is actually very little economic evidence that higher minimum wages, within reason, cause job losses. In fact, the available evidence points to the opposite. Because low-wage workers are much more likely to spend their income than save or invest it, higher wages go directly back into local economies, where they create more consumer demand. At the end of the day, consumer demand is what really creates jobs - not CEOs’ beneficence.

In truth, the core of the debate over minimum wage hikes has never actually been about real-world evidence, but rather over philosophical beliefs. Empirical economic evidence can do little to sway beliefs like these. Folks with a more pragmatic viewpoint, however, may find the real-world evidence for wage hikes compelling.

Higher minimum wages grow the economy and jobs, lead to more broadly shared prosperity, and a better society for everyone. And best of all, raising the wage is extremely popular. Why not learn from Virginia’s example?



For more: check out Our Daily Bread: The Hourly Workers Package, a policy brief from Carolina Forward that examines North Carolina’s hourly workforce and proposes six key reforms to put them at the front of the line for growth once again.


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