- Real-world evidence shows that minimum wage hikes don’t harm job growth – and might even help it
- Low wage workers unambiguously benefit from higher wages
- Policymakers should be wary of self-interested big business lobbying on this issue
About six months ago, we published The Great Wage Experiment – a piece about a large-scale “natural experiment” taking shape between North Carolina and Virginia. Today, we’re excited to provide an update from the latest economic data in both the Commonwealth and North Carolina.
In 2019, Democrats won control of Virginia’s state legislature, in addition to its governorship, for the first time in 26 years. Among their very first priorities was raising the Commonwealth’s minimum wage, which was then only $7.25 an hour – the federal minimum. (This is also North Carolina’s minimum wage today.) They set in place a series of wage increases that will rise every year, until it hits $15/hour in 2026.
Virginia’s big business lobby, joined by Republican leaders, decried the move, claiming it would “destroy jobs,” lead to slower job growth, and hurt lower-income workers the most. Supporters mostly ignored these claims, pointing to the significant economic research evidence that shows that minimum wage hikes do not hurt job growth, and did it anyway.
Given the deep similarities between Virginia and North Carolina, this provided the setting for a perfect large-scale experiment. North Carolina’s minimum wage ($7.25, the federal minimum) has not changed, but Virginia’s rose first to $9.50/hour in May of 2021, and then to $11/hour in January 2022. We thus have an outstanding side-by-side example to observe the effects of a higher minimum wage on job growth.
The data is in: higher wages are good
On Friday, June 22nd, the Bureau of Labor Statistics released its most recent State Employment and Unemployment report. We now have the advantage of data through June of this year. In the first six months of 2022, North Carolina’s minimum wage remained constant, while Virginia’s rose from $9.50/hour to $11/hour. So what was the result? No appreciable difference in job growth.
- According to the Virginia Employment Commission, since January, the Commonwealth’s unemployment rate has dropped 60 basis points, from 3.4% to 2.8%. 85,302 more Virginians are employed now than in January.
- By comparison, according to the North Carolina Department of Commerce, North Carolina’s unemployment rate has dropped 50 basis points, from 3.9% to 3.4%, in the same time period. 119,444 more North Carolinians are employed now than in January.
Bear in mind that while comparable, North Carolina has roughly 2 million more residents than Virginia (10.4 million to 8.5 million, respectively). Nevertheless, while Virginia’s unemployment rate seems to have dropped slightly faster, there was very little difference overall in the two states’ job growth patterns – despite the fact that Virginia’s minimum wage is 52% higher.
One reason for this is because the market-clearing wage for labor in most places is already above $7.25. Even at $10 or $11/hour, it is difficult for many employers to hire enough labor. Where people work for less, it more likely reflects the desperation of the person looking for work than the employer’s ability to pay. As noted in our policy paper on hourly workers, Our Daily Bread: The Hourly Workers Package, the large majority of low-wage workers are employed by large, corporate employers, not “mom and pop” small businesses.
But what about low-wage workers?
Another alternative argument against higher minimum wages is that it has a perversely negative effect on low-wage workers, who result in fewer job opportunities. But yet again, this argument does not square with real-world experience.
One industry where low-wage workers are heavily clustered is in leisure and hospitality businesses. If higher minimum wages hurt low-wage job growth, this is one area where we would certainly expect to see that clearly reflected. Yet we do not.
Between May 2021 and May 2022 (the latest date for which industry-level data is available), Virginia added 64,000 new leisure and hospitality workers, while North Carolina (again, a larger state) added only 48,000.
Implications for wage policy
Debates over the minimum wage often seem interminable because, in truth, they are rarely about evidence. That evidence is pretty clear-cut: higher minimum wages benefit low-income workers. Instead, the debates often stray into ideological debates with little tangible substance to them. These are particularly susceptible to reductio ad absurdum arguments: "what if we made the minimum wage $100 an hour?" Indeed, that would probably have bad economic consequences. But a few dollars more added to low-wage workers' paychecks will not - and, as evidence shows, has not - harmed economic growth.
The real issue is that the people who most stand to benefit from higher wages - low-wage workers, who are very disproportionately women and people of color - are also the ones with the least influence in our political system. They have no expensive lobbyists trolling the hallways of the legislature on their behalf, do not contribute millions to anyone's campaign, and are frequently unaware of what they stand to gain from political engagement. It is up to political leaders to advocate for this group of people and deliver them real benefits - and for voters to support them.
Our Daily Bread: The Hourly Workers Package examines North Carolina's enormous hourly workforce. These workers are frequently ignored by state lawmakers. In this paper, we propose 6 key reforms lawmakers could enact to put hourly workers back at the front of the line for economic growth.