Raising the minimum wage not only increases wages, but can improve jobs, new research says

Raising the minimum wage could increase the number of “good jobs” in the labor market, according to a new analysis from the National Bureau of Economic Research (NBER). “Good jobs” are defined as those that “provide a middle-class standard of living, high enough wages, good benefits, reasonable levels of personal independence, adequate economic security, and a career ladder.”

National Bureau of Economic Research researchers examined data from Uruguay, which increased its minimum wage by 80% in 2005 and began implementing inflation-based wage increases after that. What happened was that the minimum wage increased three times between 2004 and 2013, and a significant reduction in wage inequality.

The report found that increasing the minimum wage forced employers who paid lower wages to workers to catch up with their better-paid peers. This has led to wage growth among low-income workers and a narrowing of the gap between minimum and median wages. In fact, increases in 2005 alone reversed more than seven years of rising inequality in just one year, the report said.

“The results suggest that the minimum wage can increase the supply of ‘good jobs’ by ‘improving bad jobs,’ as well as reallocating workers toward ‘good jobs,'” the researchers noted.

Significantly, National Bureau of Economic Research researchers found that raising wages for low-income workers did not lead to job losses, challenging economic theories that suggest that higher minimum wages inevitably lead to lower employment by increasing the cost of labor, a warning that has dominated policy debates for decades.

What about the United States?

The federal minimum wage in America is $7.25 per hour, and has not changed since 2009. Individual states have set their own minimum wages, the highest of which is Washington’s rate of $16.66 an hour. Washington, D.C. has a minimum wage of $17.95. Increasing the federal minimum wage by 80%, as Uruguay did in 2005, would result in a minimum wage of $13.05.

A 2023 Congressional Budget Office study using standard macroeconomic models claimed that raising the minimum wage to $17 an hour by 2029 and tying it to inflation thereafter would raise the wages of 11.3 million workers and perhaps 12.4 million more on top of that.

However, the Congressional Budget Office estimated that about 230,000 jobs would be lost by 2027 in the $17/hour scenario, with 1 million jobs lost by 2033.

Even a $12 minimum wage could have a significant impact. A 2023 study by the National Bureau of Economic Research estimated that setting a $12 minimum wage would not only increase workers’ wages, but could reduce gender and racial wage gaps by 25% to 50% among those in the 15th income percentile and below.

Bottom line

Raising the minimum wage could have a significant impact on the number of good jobs in the economy, according to an analysis by the National Bureau of Economic Research. Workers’ incomes rose in Uruguay, where companies that historically paid their employees lower wages increased.

In the United States, the minimum wage has remained at $7.25 an hour since 2009. Raising it to $17 by 2029 would raise wages for millions of Americans, according to the Congressional Budget Office, despite the possibility of some job losses.