Effects of minimum wage hikes studied

Low-wage workers tend to commute away from states that raise the minimum wage rather than toward them, according to the results of a study conducted at the University of Colorado that found that initiatives raising wages could have unintended consequences.

“It found that low-skilled workers are actually migrating away from minimum-wage increases in their own states,” said Terra McKinnish, an economics professor who led the study. “That’s a sign that these increases could be having negative effects on their job opportunities.”

The results of the study, published in Regional Science and Urban Economics, come as dozens of states have enacted or are considering minimum wage increases.

Colorado voters approved a measure in November to raise the minimum wage from $8.30 to $9.30 per hour Jan. 1 and incrementally increase the minimum wage to $12 an hour by January 2020.

Voters in Arizona, Maine and Washington passed similar measures. Some advocacy groups have called for a federal minimum wage increase to as much as $15 per hour.

McKinnish said some economists worry such efforts could have a disemployment effect. “By making low-skilled workers more expensive, there is the potential for employers to use fewer workers, switch to slightly higher-skilled workers or exchange capital technology — such as self-serve kiosks — for low-skilled workers.”

The results of a study published in 2014 by CU economist Brian Cadena found that immigrant workers are less likely to move to states that raise minimum wages. But some recent news reports have suggested anecdotally the disemployment effect is minimal and low-skilled workers commute from lower-paying states like Idaho and New Mexico to states like Washington and Colorado with higher minimum wages.

McKinnish set out to test which scenario is more likely. “I wanted to find out: If a state increases (its) minimum wage relative to a neighboring state, does that make workers more or less likely to commute out of state?”

She looked at census data for 93 labor markets in 23 states where low-skilled workers commonly cross state borders for work. She assessed out-of-state commuting rates for low-wage workers making under $10 an hour and a control group of moderate-wage workers making $10 to $13 an hour in 2005 to 2008. She said she found no evidence low-wage workers commuted at higher rates to neighboring states with a higher minimum wage.

McKinnish then examined the data for 2010 to 2011 after a federal minimum wage increase to $7.25 an hour prompted many states to boost their minimum wages and lessened the differences between neighboring states. “If low-wage workers were previously attracted to commute across state lines in order to receive a higher minimum wage, we would expect the rise in their own state’s minimum wage, relative to that of the neighbor’s, to reduce the rate of out-of-state commuting,” she said.

McKinnish said she found the opposite. While moderate-wage workers were more inclined to stay in state, low-wage workers increasingly commuted out. On average, a $1.50 increase in a state’s minimum wage corresponded to as much as a 50 percent increase in the number of low-wage workers commuting out.

Urban areas, where wages are already relatively high, might be less effected by such disemployment forces, McKinnish said. But rural areas could be hard hit. The larger the minimum wage increase, the greater the effect, the study found.

McKinnish said she hopes that as more states, municipalities and universities consider living wage initiatives, her research can help inform the discussion.

“This study is an argument to be more cautious and to thoughtfully weigh pros and cons,” she said. “If you raise the minimum wage, there are undoubtedly people whose wages will go up and who will benefit. But this and other papers suggest that there are also people who could be harmed, and those people will be the very lowest skilled people in the work force. It is possible to legislate people out of a job.”

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