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Low-Wage Workers Are Getting A Raise, And Economists Are Getting An Experiment

The new year brought raises — sometimes big ones — to millions of low-wage workers. It also begins the country’s first large-scale experiment in the economic effects of a double-digit minimum wage.

According to data collected by the National Employment Law Project, a workers-rights advocacy group, 19 states and 21 local jurisdictions raised their minimum wages at the start of 2017.1 Many of those increases were small cost-of-living adjustments, but some of them were dramatic. Arizona, where voters approved a wage hike on Election Day, raised its minimum wage by nearly $2 an hour, to $10 from $8.05. Maine’s minimum wage jumped to $9 an hour from $7.50. Washington state and Massachusetts both raised their minimums to $11 an hour. In total, six states plus the District of Columbia now have minimum wages of at least $10 an hour. (Oregon will join the club later this year.)

Some cities set the bar even higher. Employers in the Silicon Valley cities of Sunnyvale and Mountain View, California, must now pay workers at least $13 an hour, up from $11 in 2016. Several other California cities have minimum wages of $12 or more. And Seattle on Jan. 1 became the first big city in the country to set its minimum wage at $15 an hour for some employers.2

Low-wage workers are understandably cheering the increases. So is the union-backed “Fight for $15” movement, which defied the odds to put the minimum wage back on the political agenda. Economists, though, are watching more warily. Researchers disagree about how minimum-wage hikes affect the economy, but most studies have found that wage increases have at most a small impact on total employment — that is, there is little evidence for the claim that the minimum wage is a major job-killer.

Those studies, however, have generally been based on minimum wages that were lower — and wage hikes that were more gradual — than the ones many cities and states are seeing now. Before 2015, few if any states had experimented with a minimum wage above $10 an hour, even adjusting for inflation.3 And wage increases of $1 or more were rare. So no one really knows what will happen with these new, more aggressive wage hikes.

Preliminary evidence from Seattle and other cities that were leaders in the latest wave of wage increases has been encouraging, or at least has suggested that the more apocalyptic claims of minimum-wage opponents haven’t come to pass. But the start of 2017 brings the experiment to a much broader array of cities and states. Economists and policymakers on all sides of the issue will be watching closely to see what happens.

Footnotes

  1. New York state’s increase technically took effect on New Year’s Eve. The rest took effect on Jan. 1.

  2. Large employers in Seattle (those with at least 500 U.S. workers) must pay $15 an hour if they don’t offer health benefits, or $13.50 if they do. For smaller companies, the minimum wage rose to $11 an hour. The minimum wage will eventually rise to $15 an hour for all Seattle employers.

  3. Adjusting for inflation using the Consumer Price Index, a handful of states have had brief periods during which their minimum wages were worth more than $10 an hour in today’s dollars. Alaska and Hawaii, where living costs are unusually high, are the only states to have had minimum wages that high for a significant period. But using an alternative inflation measure that most economists consider superior — the personal consumption expenditure price index from the Bureau of Economic Analysis — no state has had a $10 minimum wage for a sustained period. This is based on my analysis of state minimum-wage data collected by the Washington Center for Equitable Growth.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

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