Academic journal article Stanford Journal of Law, Business & Finance

Making the Minimum Wage Work: An Examination of the Economic Impact of the Minimum Wage

Academic journal article Stanford Journal of Law, Business & Finance

Making the Minimum Wage Work: An Examination of the Economic Impact of the Minimum Wage

Article excerpt

This Article synthesizes the empirical economic impact data from minimum wage increases over the past several decades and compares the results to the recent aggressive efforts being made at the local level in major cities like Seattle, Chicago, Los Angeles and San Francisco. Economic analysis reveals that while employment losses were relatively significant from raises in the minimum wage increases thirty years ago, those job losses were much smaller with subsequent wage hikes in the past two decades - i.e., the net gains to the working class have outweighed the costs. This Article offers theories to explain why that is so: for one, employees are more productive due to technological advancements than they were decades ago, and second, the federal minimum has fallen further and further behind the average national wage (so that increases affect relatively few workers). This Article analyzes whether the same net benefits to the working class are likely to accrue with the very recent push to a $15 minimum wage in cities like Seattle and San Francisco and major states like New York and California. The initial data paint a cautiously optimistic picture, indicating that job losses (and product-price increases) from these aggressive minimum wage laws have not been prohibitive, but that they exist and are certainly worth monitoring. Finally, this Article proposes several normative policy mechanisms to facilitate a smoother transition to a newly revamped minimum wage nationwide.


For over a century now, economists and public policy makers have tirelessly debated the merits of a mandatory minimum wage.1 Some prefer a pure capitalist approach, rejecting a wage floor altogether on the assumption that the unregulated marketplace will efficiently match job-seekers with job-offerors.2 At the opposite end of the political spectrum, others look to socialism, hoping to impose the same wage upon all workers regardless of their particular industry or position.3 The vast majority, however, have argued for something in between the two extremes,4 though a precise formula for minimum wage determination has proven elusive as economic conditions shifted over time.

In 1938, Congress joined the fray, promulgating the Fair Labor Standards Act ("FLSA" or the "Act")5 in order to "correct and eliminate conditions detrimental to maintaining a minimum standard of living necessary for the health, efficiency, and general well-being of workers."6 Congress desired that every working American should be able to earn a "living wage," one that would allow them to escape poverty, reliably put bread on the table, and rent money in the bank.7 Over the years, various states and localities have also enacted their own minimum wage laws to ensure a higher standard of living for employees subject to unsympathetic industry wage pricing.8 Or, viewed from the Supreme Court's perspective, to "lessen, so far as seemed then practicable, the distribution in commerce of goods produced under subnormal labor conditions."9 In short, minimum wage laws exist to "raise the floor" for working-class Americans by safeguarding their financial stability.10

Of course, the flip side of that coin is that any mandatory floor on wages imposed above the market level has the perverse potential to put employees out of work11 - i.e., on the margins, employers would rather invest in technology or cut back on their labor force if workers are more expensive.12 Hence, Congress also warned in its FLSA policy statement that its goal was to be cautious to avoid "substantially curtailing employment or earning power of employees."13

In the past forty years, many scholars and economists have examined the impacts of gradual increases in the federal minimum wage, with conflicting results.14 In 1977, the federal minimum wage was increased by $1.05 over the course of four years.15 The immediate and semi-immediate returns were not pretty: each 10% swell in the minimum wage triggered a loss of employment of over 1%. …

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