Spencer Looks at Minimum Wage Increases

Reader Spencer, like a lot of other folks who frequent this blog and similar blogs, has an annoying habit of looking at data, and data has an annoying habit of not necessarily doing what our betters tell us theory says.

Here’s Spencer looking at Minimum Wage increases…


With the Federal minimum wage increasing from $5.15 to $5.85, or 13.6% this week I expected to see several discussion of it on the Web. But it seems to be generating little interest.

But it did suggest that I should take a quick look at what happened so far this year in the seven states that raised their minimum wage in January, 2007. It is too early to have detailed data or comprehensive studies, so I’m just taking a quick first pass at the available data.

The industry most dependent on minimum wage employees is the restaurant industry, so I will compare restaurant employment to trend and employment in other sectors. If the theory that increasing the minimum wage causes minimum wage employment to fall is correct, it should negatively impact these two comparisons.

ARIZONA raised the minimum wage from $5.15 to $6.75, or 31.1% they also raised the minimum wage for employees earning tips from $2.13 to $3.75, or 76.1%. From 1997 to 2006 Arizona was one of the fastest growing states and total nonfarm employment rose at an average annual rate of 3.5%, as did employment in Arizona restaurants. In the 12 months ending in June, 2007 total Arizona employment rose 2.9% while employment in

Arizona restaurants rose 4.9%. In the 6 months from December, 2006 to June, 2007, the total actually fell -1.4% while restaurant employment increased 4.1%. This is not seasonally adjusted data, so you have to be careful about using it. However, the evidence shows that restaurant employment rose much faster than other employment and in particularly rose much faster than it had over the previous 9 years when the minimum wage was held constant. Needless to say, this is not what the opponents predicted would happen.

COLORADO raised the overall minimum wage 44.0% and the minimum for those receiving tips 79.8%. Over the past decade total Colorado employment grew at 1.1% rate and restaurant employment expanded at a 1.7% rate. Over the past 12 months total employment rose 1.7% or about 12% faster than the recent trend. Restaurant employment rose 3.75%, or 71% faster than trend. In the last six months the not seasonally adjust gains were 1.1% for total employment and 6.3% for restaurant employment.

MISSOURI raised both its total minimum wage and the one for tip earners 26.2%. The trend growth rate here was 0.5% for total employment and 2.0% for restaurant employment. Over the past year total employment expanded 0.9% while restaurant employment was up 3.6%. The past 6 months NSA gains were 0.8% for the total and 5.8% for restaurants.

MONTANA raised its minimum wage 19.42%. This is the only state in the sample were the trend is for total employment to grow faster than restaurant employment. But over the last year total employment grew 1.6% versus its trend growth rate of 1.9%. But restaurant employment was up 1.4%, or slightly more than its trend growth rate of 1.2%.

The last 6 months NSA increases were 4.1% for total employment and 6.6% for restaurant employment.

NEVADA also raised its minimum wage 19.42%. Navada total employment rose 1.7% this year versus its trend growth rate of 4.8%. Restaurant employment was up 4.5% as compared to a trend growth rate of 8.2%.. So total employment was 36% of trend while restaurant employment was 55% of trend.

OHIO increased both the total minimum wage and the minimum wage for tip earners 33.0%. In Ohio the 9 year trend is for zero growth in total employment and a 1.1% increase in restaurant employment. From June, 2006 to June, 200 total employments fell 0.3% and restaurant employment rose 0.3%.

MASSACUHUSETTES only increased its minimum wage 11.1%. Over the past year total employment rose 1.1% as compared to a 0.4% trend. Restaurant employment rose 1.1% versus its 1.5% trend — making it and Ohio the only states with below trend restaurant employment growth. The six month NSA increases were 1% for the total and 6.3% for restaurants.

So we had seven states raising their minimum wage from between 11% and 78% for tip earners. The worse case was in Massachusetts where restaurant employment grew at the same rate as total employment. In the other six cases restaurant employment growth was stronger than total employment growth–what appear to be the normal pattern. But in four states – Arizona, Colorado, Missouri and Montana – restaurant employment growth was above trend. Massachusetts was the only state with above trend total employment growth and a below trend increase in restaurant employment – what the opponents of the minimum wage would predict.

These comments do not pretend to be conclusive, and is only a quick first look at the data. I do not claim it proves anything. But at best, Massachusetts is the only one of the seven states that appears to support the opponents of the minimum wage argument that it causes minimum wage employment to drop and harms the minimum wage employee. In every other case restaurant employment relative to trend was stronger than total employment growth relative to trend, exactly the opposite of what should happen if minimum wage increases cause minimum wage employment to fall.

It will be very interesting to see more studies of these seven states and of what happens on a national basis after the increase in the federal minimum wage.


This post was by Reader Spencer.