Apart from Joe Biden winning the US Presidency and the Democratic Party otherwise under-performing, in my view, the major news coming out of last week’s elections in the US was Florida voting to increase its minimum wage to $15/hour by 2026. Its current minimum wage is under $9/hour (see this CNBC report). You may be aware that a $15/hour minimum wage was adopted by Seattle in 2015 and there is a growing movement to increase minimum wages across the US to improve living standards of minimum-wage workers and to reduce inequality.
But is increasing the minimum wage a good way to achieve these outcomes? Not necessarily, once you take into account the well-established adverse impact of minimum wages on teenage and low-skilled employment seen in many countries, including the US and Australia. The evidence tends to suggest that a 1% increase in the minimum wage would reduce the employment of low-skilled workers by 0.1% to 0.3%. While arguably not as large as might be expected, this adverse impact should be considered by decision makers and voters when deliberating on increases to the minimum wage, as I discuss in my latest podcast episode on minimum wages and employment.
In my view, the best summary of the evidence on the employment impact of minimum wages is this piece by University of California, Irvine Professor David Neumark:
Arguably, Australia’s Fair Work Commission needs to pay more attention to the adverse employment impacts of minimum wage increases in its decision making. In June, the FWC ordered a $13/week minimum wage increase despite the opposition of FWC member Economics Professor Mark Wooden. According to the Guardian Australia:
Wooden believed “risks are weighed in one direction” and growth in jobs and hours should be prioritised over a wage increase, he said.
The bulk of evidence suggests Wooden’s view was the correct one.