The evidence for raising a city’s minimum wage
Research increasingly shows that local living wage laws help workers without harming jobs — and could potentially help create more equitable cities.
Any realistic path toward more equitable cities involves, among other things, higher wages for low-income workers. So it’s very encouraging to see that the economic relief package proposed by the new Biden-Harris administration features a $15 minimum wage as a core component. Even if that wage doesn’t make the final package — despite high popularity, it’s already getting political pushback — the conversation is bound to echo across City Halls.
Politics aside, there was a legitimate policy debate for a long time over whether the benefits of raising the minimum wage (income gains for individual workers) outweighed the downside (the potential for small business closure and overall job reduction). Thanks to a spate of recent evidence, that question feels increasingly settled at the state and national level. Economists now widely agree that raising the minimum wage helps worker income more than it hurts total employment — to the extent it hurts employment at all.
Whether this outcome holds true at the city level has been the subject of far less research, and thus remains a matter of ongoing discussion. On one hand, a city minimum wage makes even more sense than a statewide minimum, since urban areas tend to have higher costs of living. On the other hand, a local living wage policy could potentially impact jobs much differently than a higher-level policy does, since it’s theoretically easier for a business to pack up and reopen just outside the city limits than it is to change states or countries.
A recent working paper goes a long way toward settling the question. Economists Arindrajit Dube of the University of Massachusetts-Amherst and Attila S. Lindner of University College London reviewed all the recent evidence on U.S. city minimum wages and conducted a new analysis of their own. They found that, on the whole, local U.S. policies had similar outcomes to those initiated at the state or federal level: income benefits for workers without much in the way of employment loss.
They conclude:
The weight of evidence suggests that city mandates (especially in larger cities) have been successful in raising wages in the bottom quartile of the wage distribution, with limited impact on employment prospects for low-wage workers.
The evidence
Let’s dive into Dube and Linder’s literature survey first. Across a number of studies, they found a consistent earnings increase for workers, as expected. More importantly, they also found that 10 of the 11 job estimates conducted to date ruled out a large or even medium-sized negative impact on employment resulting from a local minimum wage law.
Take a few examples. A 2007 study of restaurant workers in San Francisco found increased pay and reduced wage inequality without job loss. A 2006 study found benefits to a living wage law in Santa Fe with no harmful impact on employment, relatively to nearby Albuquerque. A 2018 study of restaurants in six cities found increased wages and “no significant negative employment effects”; one of the cities in this study, Oakland, actually saw a job gain.
The blip came from studies of Seattle. In addition to an earnings raise, this research also found a significant drop in low-wage work hours after a minimum wage increase, as well as evidence of workers going outside the city for work. Though concerning, the 2018 study mentioned above, which also included Seattle, found no significant work impact there. It’s possible the city’s general job boom makes it a uniquely complex research case.
For good measure, Dube and Lindner go one step further and conduct a new cross-city analysis of their own — the type of wide-reaching study that’s been done at the state and federal levels but not the local level. Their findings are consistent with the others: clear wage benefits and minimal job harm.
Comparing U.S. cities with over 100,000 people, Dube and Lindner found that the average ratio of minimum wage to median wage was much higher in 22 cities with minimum wage laws (.63) than in 249 cities without (.52). In other words, workers in cities with a living wage law made closer to the median wage, which is precisely the point. Even accounting for higher cost of living, Dube and Lindner report that “the real value of the minimum wages in larger cities with ordinances is around 25–30 percent larger than in cities without.”
They found little impact on employment, too, in a closer analysis of 21 large cities that had set a local minimum wage by 2018. Controlling for pre-law economic factors like cost of living, Dube and Lindner note a modest decline in jobs for people making under $10 an hour — an expected finding, since employers can no longer pay that little with a wage law in place. But employment grew steadily in the $10–15 an hour range, and once the wage band hit $19 an hour, the job reductions under $10 an hour had been recovered.
Among the same 21 cities with minimum wage laws by 2018, Dube and Lindner also found measurable, if modest, improvements in income equality. Again controlling for pre-law economic factors, Dube and Lindner found a clear increase in wages for workers up to those in the 30th wage percentile, but no significant increase at the top of the wage scale. In other words, the wage gap had narrowed.
Taking minimum to the max
So the evidence for a city living wage policy is encouraging. But if the goal is a more equitable city, a blanket minimum — even of $15 an hour — might not always be enough. After all, $15 takes a stronger economic bite in some places than others, both in terms of buying things and in terms of matching the city’s average hourly wage.
Sure enough, in some big cities, the policy lags behind the problem. For example, Seattle ($16.39) and Denver ($12.85) have very different minimum wages, but they have roughly the same ratio of minimum wage-to-median wage. In other words, the headline wage number itself doesn’t mean much without the local context. For workers to benefit, a living wage must stay in step with living conditions.
“This highlights that top-line nominal minimum wage numbers can provide a misleading picture of how local minimum wage polices may affect a local economy,” write Dube and Lindner.
There are certainly ways to strengthen local impact. Cities can index their minimum wage laws to the cost of living, or at least to inflation, protecting workers over the long term. And it’s worth noting again that even when cost of living gets taken into account, city living wage policies have pushed wage standards beyond what states have provided.
In the future, better local economic data can help implement wage policies in a way that’s fair for both workers and small businesses, and to track its impact over time. That’s especially important coming out of the pandemic, with so many small businesses struggling alongside workers for survival. Basic threshold measures of financial stability might help cities determine when a given business has recovered sufficiently to adopt a wage increase.
That’s getting ahead. But whether or not the federal government passes a new living wage, momentum is clearly growing at the local level. From 2010 to 2020, the number of U.S. cities that set a living wage above the state or federal minimum rose from just 3 to 42. Still, the policy reach remains far less than it could be, with a majority of states actively preventing municipalities from raising the minimum wage — a blockage that new evidence can hopefully loosen.
Setting a living wage isn’t the only thing cities must do to become more equitable, but in a time when we all long for vaccines, it’s definitely a shot in the arm.
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