By Holley Ulbrich, contributor | States and cities around the country are raising the minimum wage above the federal level of $7.25, set in 2009. Twenty-nine states already have a minimum wage greater than the federal minimum. Some states and cities are phasing in increases up to $15 an hour over the next few years. Congress has shown no interest, but the issue has come in up in the presidential campaign.
Traditionally, economists argue that higher minimum wages will create unemployment, although it has been hard to find clear evidence one way or another. After all, economists don’t get to do controlled experiments.
But sometimes, there is a natural experiment. This one took place in Britain, which introduced a national minimum wage of just over three pounds (about $8 an hour) in 1999. It is adjusted annually. Unlike the previous minimum wage law that was repealed in 1993, the new one covered all workers, although with lower wage rates for those under 18 and apprentices. Economist David Metcalf of the London School of Economics studied in the impact of the new minimum wage in both low-wage and higher-wage areas of Britain to eliminate the effect of fluctuations in overall employment. The result of a very careful statistical study was negligible effects on employment, but positive effects on worker productivity.
Why would productivity go up? Workers may respond positively to a higher wage by working harder. More satisfied workers are less likely to quit. Turnover is costly because employers have to recruit and train new hires to replace experienced workers who leave. If better pay makes a more contented worker and if more contented workers will stay there, become more skilled and work harder, it’s a win-win situation.
Economists tend to think that productivity is a quality of the potential worker, a given, like height, age and eye color. In this case, the worker is paid the value of his productivity, or addition to the firm’s income. But what if the worker’s effort depends on the wage instead of the other way around? What if higher wages not only call forth more workers but more productivity from current workers?
Finally, even though the minimum wage has not been raised in almost seven years, it covers a very small share of workers. About 3.3 million U.S. workers — 2.5 percent of the labor force — are paid at or below minimum wage as of 2014. Firms have had to raise wages to attract and retain workers. So an increase after all this time should not be expected to have much effect on jobs and employment.
South Carolina isn’t likely to join the other 29 states with a minimum wage higher than the federal government requires. But we might be surprised by what happened if we did.
Holley Ulbrich of Clemson is a noted economist who is senior scholar at the Jim Self Center on the Future at the Strom Thurmond Institute at Clemson University.
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