20 years of government data says raising the minimum wage could be good for workers, businesses, and the economy

David McNew/Getty ImagesService workers celebrate in 2016 after California passed a bill that gradually raises the minimum wage until it reaches $US15.00 per hour in 2022.
  • Raises in minimum wage benefit the majority of low-income workers in both the short and long term, argue economists for the US Census Bureau in a working paper from earlier this year, which analyses 20 years of non-public government data.
  • Previous studies have contended that raises in minimum wage can lower earnings potential because employers often respond to the raises by reducing hours.
  • The findings provide compelling evidence that raising the minimum wage benefits a large majority of low-income workers by putting them on a path to higher earnings in the long term, and that in turn decreases inequality and leads to a healthier economy.
  • This article is part of Business Insider’s ongoing series on Better Capitalism.

The effects of raising the minimum wage have been debated for decades, but a study published in March by the US Census Bureau found that a raise in the minimum wage increases earnings growth, and increasingly does so over the long-term, all without declines in employment.

In their working paper “The Distributional Effects of Minimum Wages,” economists Kevin Rinz and John Voorheis argue that a minimum wage increase of 37% (same as the one Seattle recently enacted) in the years leading up to the Great Recession would have slowed down the increasing degree of income inequality in the United States that has been occurring for the last 45 years.

Rinz and Voorheis had access to non-public data from the Social Security Administration and linked it with data from the Current Population Survey, giving them a rich source of otherwise inaccessible information to work with. They studied data from people aged 16-64, in the years 1991, 1994, and 1996 through 2013. They built off work by Arindrajit Dube, an economist at the University of Massachusetts Amherst.

Previous research has suggested that employers respond to raised minimum wages by reducing hours, leading to lower earnings over time, but Rinz and Voorheis found the opposite when considering the broad span of data. They indicate that higher wages for lower earners could decrease employee turnover, benefitting employers as well as workers.

As Rinz wrote in a helpful Twitter thread breaking down key findings, “we find that individuals who start at low percentiles see their earnings grow faster when the minimum wage increases. Again, larger magnitude over longer horizon.”

The reason why there’s a debate around the minimum wage is because data has to be interpreted in a subjective way. But basically, the study from the US Census Bureau economists provides compelling evidence that raising the minimum wage benefits a large majority of low-income workers by putting them on a path to higher earnings in the long term, and that in turn decreases inequality and leads to a healthier economy.

The national minimum wage in the US is $US7.25 per hour, but 25 states and Washington, DC pay more. California, New York, Massachusetts, and DC have committed to raising theirs to $US15.00 per hour at different points over the next five years.

Read the full study »

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