Minimum Wage Hikes Boosted Earnings Without Job Loss: Low-income Families Reap Benefits as Intended

May 18, 1998. New from the Fiscal Policy Institute:

Press release

“The minimum wage increases that took effect in 1996 and 1997 did exactly what they were supposed to do: More than a half million New York workers got a raise, with most of the benefits going to low-income families,” said Frank Mauro, executive director of the Fiscal Policy Institute (FPI), a progressive think tank based in Latham, NY, that is supported by labor unions, foundations, religious organizations and a wide range of human service and good government groups.

The federal minimum wage increased from $4.25 per hour to $4.75 on October 1, 1996, and to $5.15 on September 1, 1997. “This 90-cent increase helped hundreds of thousands of New York workers and their families, but we still have a long way to go,” said Mauro.

At its current level, the minimum wage remains at only 82% of its 1979 value when adjusted for inflation. “A much higher minimum wage is necessary if we are to close the ever widening wage gap that characterizes our national and state economies,” said Kathy McCormack, associate director of New Yorkers for Fiscal Fairness.

Brian O’Shaughnessy, coordinator of the New York State Labor-Religion Coalition, said that only by paying a fair wage to those who do society’s hardest, least desirable jobs can we reestablish an economy where working people share in the nation’s prosperity. “Payment of a just wage is a moral issue, and we wish to bring that dimension into this debate,” he said.

At a press conference held today at the Legislative Office Building in Albany, Mauro released the results of an analysis completed at FPI’s request by Jared Bernstein, a prominent labor economist with the Washington-based Economic Policy Institute. This analysis effectively disproves the phony claims that the beneficiaries of increasing the minimum are mostly teenagers from wealthy and middle-income families. The Economic Policy Institute analysis specifically shows that:

  • The 1996-97 minimum-wage increase of $0.90 raised the wages of 550,000 working New Yorkers, about 72% of whom were adults.
  • About half of the New York workers who benefited from the minimum wage increase worked full-time, and another 30% worked between 20 and 34 hours per week.

These findings were consistent with the results nationally as reported by Bernstein and his colleague John Schmitt in a new Economic Policy report entitled Making Work Pay: The Impact of the 1996-97 Minimum Wage Increase. This new study is the most comprehensive analysis to date of the 1996-97 minimum-wage increase. It demonstrates conclusively that the wage hike has raised earnings among low-wage workers without causing job loss. Among the major findings of Making Work Pay:

  • The average minimum-wage worker provides more than half of his or her household’s weekly earnings.
  • The two-stage increase disproportionately benefited low-income working families. Households in the bottom 20% of the income distribution (average income: $15,728) receive only 5% of total family income in the U.S., but received 35% of the benefits of the minimum-wage increase.
  • Four different tests of the combined increase’s impact on employment – applied to a large number of demographic groups whose wages are sensitive to the minimum wage – failed to find job loss associated with the 1996-97 increase.

Bernstein and Schmitt used data from the U.S. government’s monthly Current Population Survey for the period from October 1996 through February 1998 to evaluate the impact of the increase on the wages, incomes and job opportunities of low-wage workers and their families. Bernstein used the same data to compute the impact on New York workers, the results of which were released today by the Fiscal Policy Institute.

According to Bernstein and Schmitt, the study’s empirical conclusion that strong wage gains occurred without a negative impact on employment conflicts with traditional economic theory that a minimum-wage hike costs jobs. They find, however, that models incorporating a variety of factors such as the costs of recruiting, training and motivating low-wage workers, more accurately reflect the character of the low-wage labor market. These models, designed over the last decade, better explain the dynamics of the low-wage labor market, they write.

“Our evaluation shows that moderate increases in the minimum wage serve to reconnect the economic fortunes low-wage workers to the growing U.S. economy,” Bernstein said.

Bernstein will be in Albany on Tuesday, June 2, to speak at the conference “Does Work End Poverty?” sponsored jointly by the Fiscal Policy Institute, the New York State Career Options Institute, SENSES, New Yorkers for Fiscal Fairness, the New York State AFL-CIO and a number of other labor, research and advocacy organizations. Bernstein will be speaking at 8:30 a.m. in the Campus Center Ballroom on the campus of the University at Albany, SUNY. The conference begins Monday evening, June 1, with a presentation by noted author and commentator Barbara Ehrenreich and ends June 3 with a lunchtime presentation by Mark Hoover, Deputy Commissioner of the New York City Human Resources Administration. For a complete conference program and registration information, contact Claudia Friedetzky at the New York State Career Options Institute at 518-786-6424.

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