Minimum Wage Hikes Are No Factor In Strong June Jobs Report. When Will We See Impact?

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A higher minimum wage kicked in for employers in 14 cities, counties and states on July 1, while January 1 also saw many hikes. And unlike past increases, many were not just a few cents per hour but substantially higher. So when will these higher minimum wage rates pull down aggregate employment?

The minimum wage hikes certainly are not reflected in the June 2016 data, which just came out as this article is being written. Total jobs across the country increased by 287,000. Some 35,000 of the gain was a rebound from the Verizon (NYSE:VZ) strike in May. Even without that bounce, June's gain was the best of 2016 and better than half the months of 2015. Nope, no minimum wage impact in this month's jobs report.

I have no doubt that employment will be reduced by the higher minimum wages, but that's not the same as saying that the losses will be substantial. Some states are not changing their minimum wages. And in all states, workers at or near the minimum are a small minority. They are an especially small minority in the states with the highest minimum wages. So we're not talking about many people.

Employer adjustment to the minimum wage can take many forms. Although there certainly will be job losses, in some cases non-wage benefits will be cut to offset the wage increase. When total hours worked are cut, some of that may come from few hours per worker rather than fewer workers.

The timing of the cuts that do occur is variable. Some employers may take action in anticipation of the increase. For example, a company that wants a four percent reduction in the workforce when the new minimum wage takes effect may stop hiring a month in advance, letting attrition reduce the headcount.

More often, though, employers will be slow to react. They will probably be uncertain how much of the higher wage bill they can pass on to customers, so waiting to see what competitors do makes sense. Some workers will be replaced by new equipment, which can take time to acquire and install. Different companies will respond over different time periods. There may not be a sharp demarcation in employment levels between old minimum wage and new minimum wage. The famous Card & Krueger study which found no impact from a minimum wage increase looked at changes in employment eight months afterward. That may have been too short a time frame. (Other research into the same minimum wage increase found a four percent job loss.)

For the overall U.S. economy, there isn't much happening due to the higher minimum wages in some jurisdiction. For the most disadvantaged, though, finding a job is hard and getting harder.

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