Is it up to cities to introduce higher minimum wages?

Minimum wage hikes as a policy response to stagnant wage growth for U.S. workers at the bottom of the wage ladder are increasingly popular these days. But this popularity isn’t just at the federal and state level — a number of cities and municipalities that want to raise minimum wages on their own. Now cities have turned into another front in the larger debate about the effects of raising the minimum wage on employment, which in turn raises a new question. As The New York Times’Jennifer Medina notes, effective enforcement of higher wages might be an issue for cities and municipalities.

There is little direct research on the enforcement aspect of raising the minimum wage, so before turning to how cities and municipalities might police these higher wages, let’s look back at the evidence about what happens to wages when the minimum wage has been increased in the past. While studies on the effect of the minimum wage on employment can come to very different conclusion about what happens to employment after an increase, they all pretty much agree that the wage itself gets increased. And this is the hallmark of a credible minimum wage study. If wages aren’t going up in the data, something is up with your data or your analysis. Research finding no significant job losses due to raising the minimum wage shows an increase in wages and so doesresearch finding the opposite.  Some studies find increases in incomes for minimum-wage workers, but those results are not entirely obvious even in the absence of massive wage theft.

But if wage theft by employers who ignore the increased minimum-wage mandate were an increasing problem as the minimum wage was hiked, then wouldn’t economists see this happening at actual wage and income levels? The Quarterly Census of Employment and Wages, data used in several studies of the minimum wage, is derived from the unemployment insurance form that employers send to state agencies, so there is some potential for tampering there. But studies that use the Current Population Survey, a survey that asks households about earnings, find increases in wages as well. Of course, the Current Population Survey isn’t perfect itself when it comes to measuring wages, but it certainly shows increases.

How about the experience of implementing labor laws in cities? Several cities have taken unilateral action on labor standards in the past. Consider the experience of San Francisco. In 2006 the city passed a law that would require employers over a certain size to contribute toward their employee’s health insurance plan. A study by Carrie H. Colla of Dartmouth Medical School, William H. Dow of the University of California, Berkeley, and Arindrajit Dube of the University of Massachusetts, Amherstfinds significant uptake on the mandate. So it appears that a city can implement a labor market reform. And of course, several cities have their own minimum wages right now, including Albuquerque, New Mexico, Louisville, Kentucky, and Seattle, Washington. (Seattle might be a good example of potential complexity as it has multiple different minimum wages varying by employer size)

The question, then, is how emblematic will San Francisco be of future experiences with hiking the minimum wage? Wage theft is decidedly a real phenomenon, but how much will it affect the ability of local minimum wage hikes to actually raise incomes and wages? That remains to be seen.

This article is published in collaboration with Washington Center for Equitable Growth. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Nick Bunker is a Policy Analyst with the Washington Center for Equitable Growth. 

Image: An instructor (L) teaches trainees at a maritime transport training centre, which offers classes as part of a government-sponsored programme to train unemployed people in industrial professions, in Alexandria. REUTERS/Stringer