Raising the minimum wage does not cost people jobs and helps to increase the incomes of older workers, contrary to the notion that higher minimum wages force earlier retirements, according to Mark Borgschulte, a professor of economics at the University of Illinois.
“If we think the minimum wage has harmful effects on employment – which is a controversial position in economics, but one that a lot of economists subscribe to – then it’s going to potentially undermine our public policy goals of trying to get people to work longer,” he said.
“We find that the minimum wage not only increases the financial resources of these older households, it also more than offsets whatever small, negative unemployment effects may exist, which are statistically indistinguishable from zero.”
Borgschulte co-authored the paper, which will appear in ILR Review, with Heepyung Cho, a graduate student at Illinois. They studied the effect of the minimum wage on the employment outcomes and Social Security claiming of older U.S. workers from 1983-2016.
“From a public policy perspective, lawmakers are really interested in incentivizing people to work longer – it’s the uniform prescription across the political spectrum for how we can tackle aging-related budget issues,” Borgschulte said. “For programs like Social Security, getting people to work longer is very helpful.”
Borgschulte and Ho found that higher minimum wages increase earnings and may have small positive effects on the labor supply of workers in the key age 62-70 demographic.
“Higher minimum wages result in increased earnings and delayed retirement in that cohort, which translates into a decrease in the number of Social Security beneficiaries as well as the amount of benefits disbursed,” Borgschulte said.
“The way the Social Security systems works in the U.S. should not disincentivize work, but for whatever reason, many retirees perceive Social Security claiming as indicative of an exit from the labor force. And so we were able to show that there is no harmful effect of the minimum wage on older workers’ employment – and, in fact, it seems to delay Social Security claiming, which would be consistent with increased financial resources for older households.”
If anything, employment goes up for workers who are at retirement age, which suggests that minimum wage jobs keep people in the labor force a little bit longer, Borgschulte said.
“Public policymakers have not spent as much time as they should thinking about how we should keep people in the labor force,” he said.
“So in that way, having a minimum wage is an effective policy for keeping people in the labor force for longer. And economists haven’t spent enough time studying why people retire. So this paper is a small step in that direction. The reality is that many older workers are working for low wages, so the minimum wage is particularly relevant for this part of the labor market.”
The federal minimum wage is $7.25 per hour, and the minimum wage at the state level can go as high as $11.50 per hour.
“An absolutely essential caveat to any minimum wage paper is that we’re only able to study – empirically, at least – the range of minimum wages observed in the data,” he said. “And the theories about how the labor market works suggests that small changes in the minimum wage likely will have small changes in employment. Firms have some wage-setting power, and if they make changes at the margins, a higher minimum wage will likely only have a marginal effect or no change at all.”
Since the minimum wage is not $15 per hour, as advocates are demanding, there is no evidence for what raising the minimum to $15 would do.
negative consequences for older workers’ employment status, but it’s not clear what happens when it goes up to $15 per hour,” he said. “It’s harder for economists to predict when you make large changes because you’re moving out of the range of what the previous data can tell you.”