Studies into the effects of minimum wage on employment and job creation vary considerably in their methodology and findings. While the debate continues, there are many recent research papers that have found moderate minimum wages have little effect on overall unemployment in European countries.

So, while the evidence does show that the overall unemployment level is often unaffected by changes to the minimum wage, people employed in low-skill and low-paying positions experience greater adverse effects.

Mr Shorten’s claim that the evidence from Europe shows the minimum wage doesn’t increase unemployment is backed up by the research on overall employment levels, but when looking at young people or the level of the minimum wage, it’s not so straightforward.

There’s more to the story, so let’s find out.

• Does Increasing Minimum Wage Decrease Jobs?
• Does Minimum Wage affect Employment?
• What Jobs can pay less than Minimum Wage?
• What is the Benefit of Minimum Wage?
• Does Minimum Wage cause a Surplus or Shortage?
• What Happens if you are paid Below Minimum Wage?
• What is the Highest Paying Minimum Wage Job?

Does Increasing Minimum Wage Decrease Jobs?

One reason why there is disagreement over the impact of the minimum wage on employment is because it is difficult to measure what effect a change to the minimum wage has on employment levels.

Read Also: Would a Minimum Wage Trap People in Poverty?

David Metcalf from the London School of Economics noted in a 2006 paper that because employment responds gradually to changes in the minimum wage, it is difficult to confirm exactly what changes in employment are associated with minimum wage policies.

“The longer the time horizon, the more other factors come into play to also influence employment,” Professor Metcalf wrote.

Hielke Buddelmeyer, senior research fellow at the Melbourne Institute’s Labour Economics and Social Policy Research program, told Fact Check that “30 per cent of minimum wage workers live in the poorest 20 per cent of families”.

However, minimum wage workers make up a relatively small proportion of all workers in the economy, and the impact on unemployment for these workers can therefore be “swamped” by other factors influencing the broader employment conditions in an economy.

Professor Metcalf notes in his 2006 paper that there is “some evidence of adjustment in hours rather than workers” in response to the minimum wage. So while overall employment may appear to be unchanged by the minimum wage, employers may reduce the hours of low-skilled workers.

What’s more, the research suggests that some employers simply don’t comply with the law, and there is evidence that illegal collusion between employers and workers to avoid the minimum wage, is “certainly growing”.

These factors can minimise the employment effects of the minimum wage, and make it difficult to determine the actual effects of minimum wages on employment in an economy.

High minimum wage could increase unemployment

The Organisation for Economic Cooperation and Development collects extensive data on the minimum wages and employment levels in its 34 member states.

In a comprehensive study of employment markets published in 1998, when 17 of its member countries had minimum wages, the OECD said there was general agreement that a minimum wage set at a high level would reduce employment.

But it concluded that this would not happen if a minimum wage was set at a reasonable level. The paper said that “for prime-age adults, the most plausible specifications suggest that minimum wages have no impact on their employment outcomes”.

Jan Rutkowski of the World Bank came to a similar finding in a 2006 paper. “If the minimum wage is set at a moderate level then it does not cause significant employment losses,” Professor Rutkowski wrote.

Professor Rutkowski explained that a minimum wage set too high compared to median earnings made the minimum wage binding on a greater proportion of workers in the economy. Small changes therefore have a greater “bite” on employers and risk increasing unemployment.

The effect on young jobseekers

One area where a minimum wage appears to have an impact is for younger workers and there’s evidence that even moderate minimum wages can increase the rate of youth unemployment.

A 2014 International Monetary Fund study into youth unemployment in advanced European economies found the effect of higher minimum wages relative to median wages had an “insignificant” effect on adult employment.

But it said that young workers, who make up a large proportion of low-skilled, low-pay workers in an economy, can be adversely affected by even small increases in the minimum wage.

The OECD study also said the results of its research suggested that a rise in the minimum wage had a negative effect on teenage employment.

Many European economies introducing or increasing the minimum wage have experienced increased unemployment in low-skill, low-pay positions.

Youth employees (those below the age of 21, or in some countries aged 18 and below) fill a disproportionate number of low-skilled positions for their relative population size, and therefore are most severely affected by the introduction or increase of the minimum wage.

The IMF study calculated the effects of changes in the minimum wage on youth unemployment. It found a one per cent increase in the minimum wage relative to the median wage increased youth unemployment between 0.4 and 1.2 per cent in European economies.

Similarly, an extensive study by Professors Neumark and Wascher published by the US Federal Reserve in 2003 surveyed 17 countries, including 13 in Europe and Australia, and concluded: “In general, our results provide evidence that minimum wages tend to reduce employment rates among the youth population.”

Professors Neumark and Wascher said from their sample, the most significant disemployment effects in teen or youth employment markets were experienced in Greece, the Netherlands and Australia.

The Melbourne Institute’s Professor Buddelmeyer told Fact Check that while many reports focus on the effect of the minimum wage on young workers, older workers with “low levels of formal schooling” and those with non-transferable qualifications from overseas can also be adversely affected by the minimum wage.

Does Minimum Wage affect Employment?

The debate about the effect increases in the minimum wage have on employment is ongoing. Some studies find either no or only a small effect while others find significant effects. A study recently published in the American Economic Review provides new evidence that increases in the minimum wage reduce employment in the long run.

Economists often try to estimate the slope of a demand curve by looking for events that change the supply of the good in question but not demand.

For example, unexpected good weather that boosts the tomato crop would increase the supply of tomatoes but wouldn’t affect demand, and this would allow economists to estimate how consumers respond to the supply increase.

But increases in the supply of labor are different. Unlike tomatoes, an increase in labor may also affect the demand for labor. This could occur for two reasons.

First, more people can mean more demand for products already being produced. That, in turn, means established firms would need to expand to meet the increase in demand.

Second, demand can also increase if some of the new workers start their own businesses and thus demand additional workers. So while more tomatoes won’t demand even more tomatoes, more workers may demand even more workers. These dynamics make it tricky to estimate the effects of wage increases.

The authors of the new study—Paul Beaudry, David Green, and Ben Sand—create a framework to account for the effect an increase in the supply of labor can have on the demand for labor in order to isolate the effect of wages on employment. They find that increases in wages have a negative effect on employment over 10-year intervals.

In terms of magnitude, they find that a 1% increase in wages leads to a 0.3% to 1% decrease in the employment rate depending on whether wages increase citywide or in only one industry.

The authors find that most of the negative employment effects that result from wage increases (which are cost increases) are due to more firms closing rather than firms laying off workers.

Since more firm closings and fewer openings take longer to show up in the data than less hiring and more firing, it makes sense that the long-term effects of wage increases on employment are larger than short term effects.

The idea that higher wages affect employment via firm closings is also consistent with a study that finds lower quality restaurants are more likely to close following a minimum wage increase. Another study also finds that minimum wage increases reduce employment primarily through firm closings.

The authors directly apply their framework to recent minimum wage increases—all to $15 per hour—in Seattle, Los Angeles, and San Francisco. They estimate that Los Angeles’s increase will lead to a three percentage point decline in the city’s employment rate in the long run, while Seattle’s will lead to a two percentage point decline and San Francisco’s will lead to a one percentage point decline.

The effects are different because the minimum wage affects different percentages of the labor force in each city. In relatively high-wage San Francisco, fewer workers and firms are affected by a $15 minimum wage than in lower-wage Los Angeles.

Similarly, an increase to $15 will have a larger effect on workers earning much less than $15 than it will on workers earning closer to $15 when the wage increase goes into effect.

For Seattle workers (solid black line) initially earning $10 per hour, the long-term decline in the employment rate is estimated to be over 10%. For workers earning closer to $15 per hour the estimated decline is only about 7%.

Again, San Francisco’s estimated long-term decline is smaller (highest line) since the city’s relatively high-wage economy is less impacted by the minimum wage increase.

These results don’t necessarily mean minimum wage increases are bad policy. They do, however, support the notion that higher minimum wages have a cost, namely fewer employment opportunities for lower-skill workers. It’s important that we recognize this cost in any discussion about minimum wage policy.

What Jobs can pay less than Minimum Wage?

It can be tough to make a decent living on the lowest wages in the United States. Even before taxes, working full-time at the federally mandated minimum of $7.25 per hour only earns you $15,080, assuming you work 40 hours each week without any vacation. In some cases you can net $20,000, but that annual income is hardly enough to live on.

Though many states and cities are taking the minimum wage into their own hands, raising the bar to $12 or even $15 per hour, it won’t solve the entire issue of low-earning wage workers.

Many people will see a boost in their incomes if and when their local minimum wage rises. However, there are millions more American workers who earn less than the minimum wage, and might not see any sort of a boost in the near future.

Minimum wage exemptions

In some cases, those minimum wage exemptions apply to groups of people. Youth workers under age 20 can earn less than the minimum wage for the first 90 days of their employment, likely to prove they can handle the job before graduating to minimum wage after proving their work ethic.

In addition, some workers with disabilities can earn less than the minimum wage, as can full-time students employed in certain jobs.

However, by law some jobs can also come with a paycheck that’s less than $7.25 per hour. These positions are officially exempted from the Fair Labor Standards Act, the law that dictates overtime and minimum wage pay.

In fact, more employees earn less than the minimum wage than the number of people who earn the minimum wage, according to the Bureau of Labor Statistics.

Roughly 870,000 workers earned exactly the minimum wage in 2015, and about 1.7 million Americans earned less than the minimum wage because of certain exemptions. The bureau reports that these workers make up about 3.3% of all hourly workers in the United States.

According to the Department of Labor, these types of jobs have a greater likelihood at offering sub-minimum wages than other career offerings.

1. Farm employees

Agricultural labor can be backbreaking, intensive work, but that doesn’t mean the wages are always good. Helping during the harvest or tending livestock on small farms can be exempt from minimum wage laws, meaning the starting payments can be less than $7.25 per hour.

You can also be exempt from minimum wage laws if you are related to the owner of the farm, presumably to allow families to work the land together without requiring payments to children or other relatives.

Though all of these exemptions exist to make it easier to find workers and support the businesses, many workers will be offered at least the minimum wage so they’re convinced to apply for the job. According to data from the BLS, the median pay for agricultural workers is $20,090 per year, or roughly $9.66 per hour.

2. Seasonal and recreation workers

If a job is only open seasonally for a few months out of the year, the employer might not be required to offer minimum wage to its entire staff. This can affect ski lodge employees, amusement park operators, and additional recreational workers who are only needed on a temporary basis. Not only will you have your job for a few short months, but you might not make much doing so, either.

According to a BLS report, the annual median salary for amusement and recreation attendants is $9.27, meaning that some minimum wage positions are available.

3. Independent contractors

Independent contractors are defined by the IRS as anyone in a profession “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” This can include electricians who work on behalf of other businesses, to name one, or it can include doctors, dentists, lawyers, and other professionals.

Independent contractors are by nature self-employed, and do not fall into the minimum wage requirements. These contractors are counted differently by various governmental agencies, but anywhere from 7.9% to a full third of American employees can be considered contingent employees, the umbrella group under which independent contractors fall.

Obviously, doctors and lawyers are often charging far, far more than the minimum wage in exchange for their services. However, people working in specific trades might need to work harder to demand higher pay.

4. Babysitters

If you are a full-time child care worker, you fall under the minimum wage rules. However, people who babysit on a casual basis do not have the right to demand minimum wage payment. Technically, babysitters in this capacity would fall under the independent contractors, as would professional au pairs.

Even the most casual of babysitters will typically make more than the minimum wage, however. A Care.com survey in 2014 found that the average babysitting rate was $13.50 per hour, with sitters in cities like New York commanding a hefty paycheck of more than $15 per hour.

Of course, that rate could include watching multiple children and conducting household tasks as well, but it’s a much higher margin than some of the other jobs on this list.

5. Tipped employees

If part of an employee’s compensation comes from tips, the base wage plummets from the minimum rate to a starting paycheck of $2.13 per hour. The theory is that most servers will end up earning more than the minimum wage when tips are taken into account. 

According to Pew, they do often exceed the minimum wage threshold, but only by small margins. In fact, the largest group of people earning near-minimum wages is that of restaurant/food service industry workers. About 3.75 million Americans work in a food service industry making near-minimum wage.

If you’re a fantastic server at a reputable restaurant, your take-home pay can be far greater than minimum wage. However, so much of that depends on the individual circumstances. Overall, the BLS reports that food and beverage servers, along with related personnel, earn a median salary of $19,040 per year.

Other minimum wage exemptions

In addition to the previous jobs, the Department of Labor lists a few other exemptions to the minimum wage laws. Some are typical jobs, but others suggest the specifications were needed to close odd employment loopholes (“homeworkers making wreaths” is one example). Among the list are the following five professions:

1. Federal criminal investigators
2. Switchboard operators
3. Seamen on foreign vessels
4. Employees in the fishing industry
5. Newspaper delivery persons

What is the Benefit of Minimum Wage?

The primary argument advanced in favor of raising the minimum wage is that higher earnings would improve the overall standard of living for minimum wage workers by providing them with a more appropriate income level to handle the cost of living increases.

A 2019 Congressional Budget Office (CBO) report projected a significant improvement in the standard of living for at least 17 million people, assuming a minimum hourly wage of $15 by 2025, including an estimated 1.3 million people being elevated above the poverty line.

While some proponents of raising the minimum wage estimate that a much larger number of individuals and families will move out of poverty if they earned more money, a related potential benefit is a projected reduction in the need for federal and state government expenditures on financial aid for poor and low-income individuals.

Meanwhile, an intangible benefit that could translate into tangible benefits for both companies and employees is improved employee morale resulting from higher wages.

Business owners frequently note the challenge of providing sufficient encouragement to spur workers to put maximum effort into their job duties, and that this is particularly problematic with low-wage workers who feel that their job efforts aren’t keeping them out of poverty.

Increasing employee morale could easily translate into more tangible benefits, such as increased employee retention and reduced hiring and training costs.

Employees who are more inclined to stay with a company longer could benefit from greater advancement and from an overall reduction in job-related relocation expenses.

A boost to economic growth is another potential advantage of increasing the minimum wage, as consumer spending typically increases along with wages. A higher minimum wage would put more discretionary dollars in the pockets of millions of workers; money that would then flow to retailers and other businesses.

Does Minimum Wage cause a Surplus or Shortage?

A good example of how price floors can harm the very people who are supposed to be helped by undermining economic cooperation is the minimum wage. Legislating a minimum wage is commonly seen as an effective way of giving raises to low-wage workers.

Unfortunately, it, like any price floor, creates a surplus. In this case, it is a surplus of workers (suppliers of labor), more of whom are willing to work in minimum-wage jobs than there are employers (demanders) willing to hire at that wage. We call a surplus caused by the minimum wage “unemployment.”

A wage floor hits workers with limited skills, primarily young people. According to The Economist, in 1997 the average unemployment rate among workers under 25 was three times greater than the average unemployment rate among those 25 or older (June 27, 1998).

Young people are best able to improve their economic prospects by developing skills that increase their productivity. For those with the fewest advantages, the best hope is work experience and on-the-job training. The minimum wage reduces the number of people employers will hire for what is essentially training.

Consider also that the minimum wage reduces the cost of discriminating on non-economic grounds in hiring. With more young people applying for jobs than employers want to hire, and with no legal way of paying a lower wage, it costs nothing to exclude some applicants from consideration.

If an employer has a choice between hiring the mayor’s son or a poor kid from the other side of the tracks who would be willing to work for less, the mayor’s son is almost sure to get the job.

The young person from an affluent family can expect to have connections that make it possible for him to get a minimum-wage job before heading off to college, or a part-time minimum-wage job while in college.

The poor kid whose education in an inner-city public school makes going to college unlikely, and whose best hope for gaining skills is job experience, is less likely to get a job because of the minimum wage.

This kid would have a far better chance if he could communicate his willingness to work by accepting the lower wage that is now outlawed. It should surprise no one that the unemployment rate for nonwhite teenagers is several times the rate for white teenagers.

The political demand for the minimum wage does not come from low-wage workers. Today labor unions are the most active supporters of increasing the minimum wage.

Unskilled nonunion workers can compete with skilled union workers only by offering their services for less. Increasing the minimum wage limits this competition, allowing union workers to demand higher wages than would otherwise be possible.

What Happens if you are paid Below Minimum Wage?

It’s against the law to pay below the National Minimum Wage or National Living Wage or to falsify pay records.

Investigation by HMRC

Anyone can report an employer to HMRC (HM Revenue & Customs) for not paying the minimum wage. The initial report can be anonymous.

If HMRC finds that an employer has not paid at least the minimum wage, they can send a notice of arrears plus issue a penalty for not paying the correct rate of pay.

HMRC can also take employers to civil court for not paying the National Minimum Wage or National Living Wage. The maximum fine for non-payment is £20,000 per worker. Employers who fail to pay can be named publicly and banned from being a company director for up to 15 years.

Taken to tribunal or court

Employers can be taken to an employment tribunal or civil court if an employee or worker feels they have: 

• not been receiving the National Minimum Wage or National Living Wage
• been dismissed or experienced unfair treatment (‘detriment’) because of their right to the National Minimum Wage or National Living Wage
• been discriminated against because their age means they are entitled to a higher minimum wage rate

What is the Highest Paying Minimum Wage Job?

By now we should all know that working for the minimum wage is no way to make a living, and it’s safe to say many hourly workers in high-stress jobs deserve more. An Economic Policy Institute study finds we can stride toward pay equality with a $15 minimum wage by 2024.

Read Also: How to Get Out of Debt Working a Minimum Wage Job

Some big corporations are already heading in that direction. America’s biggest companies are giving raises to their employees and paying more than minimum wage already.

1. Costco

• Minimum wage: $14

Costco is always among the most loved retailers in America thanks in part to its awesome customer service. Employees love it, too. The company’s minimum wage at the beginning of 2018 was $13, already way ahead of most other retailers, but things are getting better for employees, Food & Wine reports the company will pay at least $14 per hour for all employees as of June 11, 2018.

2. Target

• Minimum wage: $12

For now, Target pays $12 an hour for its minimum wage. However, $12 is just a brief stop on the way to Target’s goal of paying $15 an hour, which it plans to reach by 2020 in an effort to compete with other huge retailers.

3. Lowe’s

• Minimum wage: $11.70

Lowe’s sales associates earn $11.70 per hour, according to CNBC, which averaged salary info from Glassdoor. Moneyish reports starting pay is nearly $13, but we’ll go with the more modest figure. With 290,000 employees on the payroll, paying significantly more than minimum wage is a big investment in the workforce.

4. Home Depot

• Minimum wage: $11.33

Thanks to all the secrets to saving money at the store, Home Depot helps us keep cash in our pockets. Employees can say the same thing. According to CNBC, hourly workers earn way more than minimum wage at an average of $11.33. It’s not quite the $15 minimum wage some people want to see, but its a lot more than the federal minimum.

5. Walmart

• Minimum wage: $11

There are lots of reasons almost everybody hates Walmart, but the store’s employees probably don’t feel the same way. Thanks in part to the Republican tax plan, the company bumped the minimum wage from $9 to $11 an hour.

6. CVS

• Minimum wage: $11

CVS employees got a big pay raise in April 2018. The pharmacy chain bumped hourly pay to $11, roughly a $2 increase from where it was, according to Fortune. Another new perk for full-time employees? Four weeks parental leave at full pay.

7. Disney

• Minimum wage: $10.50

We peg Disney’s minimum wage at $10.50 since Florida employees make $10 and California workers get $11. However, one of the shocking truths is that $11 doesn’t go very far in California, which is why Disney is working toward a $15 minimum wage for all its hourly employees by 2020.

8. Starbucks

• Minimum wage: more than $7.25

International coffee chain Starbucks pays more than $7.25 per hour, though it doesn’t have a set minimum and it varies state-to-state, according to CNN Money. The company has other benefits, such as six weeks parental leave, and Business Insider reports the company is increasing payroll by $120 million.