Although a higher minimum wage isn't expected to impact employee turnover or layoffs, it is projected to hurt job creation, according to a new study by Texas A&M University.
"We very carefully controlled for a number of factors that could conflate increases in the minimum wage and changes in employment and found that job creation was reduced substantially, but job destruction did not increase," says Jonathan Meer, assistant professor of economics at Texas A&M. "Net job growth falls in response to an increase in the minimum wage, but employee turnover is unaffected."
The survey finds that employees wouldn't lose their jobs if minimum wage is raised, but fewer employees would be hired in the future.
Recommended For You
"This makes intuitive sense: Firing people is unpleasant and costly, so adjustment takes some time as employers reduce their hiring of new or replacement workers," Meer says. "Some previous studies, especially ones with shorter time horizons, have failed to find an effect on the level of employment because it takes time for these effects to be reflected in total employment."
Meer further explains that there are many reasons not to increase minimum wage or even have one in place. According to Meer, when a product or service costs more, fewer purchases are made. That same reasoning applies to minimum wage.
"If workers are providing more value to employers than they cost, then they will be hired," Meer says. "If they aren't, then they will not be hired. If you're never hired and get the chance for some job experience, you can never move up the ladder. While some people may get slightly higher pay and be somewhat better off, being unemployed is really, really bad, and there's no reason why we should be focusing on the people who currently have these jobs rather than those who are trying to get these jobs but can't."
During President Obama's recent address, he noted that families earning minimum wage with two children live below the poverty line; however, this example is much different from the typical employee earning minimum wage, Meer explains.
"According to the current population survey from the Bureau of Labor Statistics, in 2009 fully half of minimum-wage earners were 25 years or younger, about two-thirds were working part-time and only a fifth were heads of household with dependents," Meer says.
Additionally, employees making minimum wage tend to see raises quickly, Meer adds.
"There's strong evidence that people make relatively rapid transitions out of the minimum wage," Meer says. "About two-thirds of workers who earn the minimum wage in one year and are still in the work force a year later, earn more than the minimum wageon average, $1 per hour more."
Ultimately, a higher minimum wage would negatively impact hiring, and the number of those who would be helped is so small that it would not stimulate the economy, Meer says.
"This money just represents a transfer from employers to workers," Meer says. "So someone somewhere else will be spending less. Business ownersmany of them small-business ownersare consumers, too, and now they'll have less money to spend."
Meer also notes that Obama did not address the other income-support and transfer programs at the federal and state levels as well as the Earned Income Tax Credit, which gives up to a 45 percent subsidy for low-income earners. Just with EITC, a single parent with two children earning $14,500 would receive $5,236 before any other transfer programs.
"People who support increasing the minimum wage are often well-intentioned, but it's quite likely that the minimum wage does more harm than good for low-income people," Meer says. "There are other policies, like the EITC, that do a much better job of alleviating poverty."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
