A study from the Center on Wage and Employment Dynamics by Michael Reich and Jesse Wursten found that minimum wage increases do not lead to disemployment in small businesses.
Reich, co-author of the study and chair of the center, said he analyzed a data set from 1990 to 2019 and ran an event study to compare results in states with different minimum wage increases and stagnations. Data was aggregated by size of business, with six different possible size categories, as well as age of employees.
According to the study, this is the first causal analysis of the role of business size on the effects of minimum wage in the U.S.
Reich stated that the main two reasons that minimum wage increases do not harm the number of jobs offered by small businesses is because it leads to businesses making slight price increases and having cheaper recruitment and retention.
“There are other hypotheses out there such as that minimum wages increase automation. Studies that I know of just haven’t found that,” Reich said. “Automation is going on but not so much because of minimum wages. There are so many other factors that have been making technology cheaper.”
The study specifically focused on low-wage industries, finding that there were significant pay effects from minimum wage increases and “no disemployment effects” in these industries.
One area where some disemployment effects on smaller businesses were found was among teenage workers, specifically workers from ages 14 to 18.
Reich said this may be because teenagers with wage increases will be able to work fewer hours at their job to support their budgets. He also linked this decrease in hours worked to states introducing scholarships that are linked to GPAs, and teenagers spending more time studying for school.
Reich alleged that reduction in work in this case is a “benefit for teens,” rather than a cost, because it is a voluntary choice for that population to spend fewer hours working.
The study also stated that minimum wage increases did lead to net increases in pay.
“Some people claim that when minimum wage goes up compliance goes down, because it makes more sense for employers not to pay the minimum wage,” Reich said. “While that’s a logical possibility, in most states when the minimum wage goes up more money is spent on enforcement.”
Reich also cited many other benefits from increased minimum wages across the board. These include improving the quality of life for children of minimum-wage workers, increasing credit scores and decreasing suicide rates.
“What may seem like a small change in your minimum wage can make you feel much better,” Reich said.