By Joseph J. Sabia
The minimum wage debate has reignited in recent months as Congress considers the Raise the Wage Act of 2019, a bill that would more than double the federal minimum wage to $15 per hour. Skeptics worry that a 107% increase in the minimum wage will substantially reduce low-skilled employment, hurting many of the vulnerable workers it was designed to help.
But a $15 minimum wage could mean more than lost jobs.
My new research, co-authored with Zachary Fone of the University of New Hampshire and Resul Cesur of the University of Connecticut, finds evidence that some affected younger workers turn to property crime as a consequence of a higher minimum wage.
Our study examined two decades of data from the FBI’s Uniform Crime Reports, the National Incident-Based Reporting System, and the National Longitudinal Survey of Youth 1997. We focused on younger, less experienced teens and young adults who make up a disproportionate share of the minimum wage workforce, and who are more likely to face the brunt of any increase. We examined various types of crimes including property, violent, and drug crime.
Our results are clear. Over the period from 1998 to 2016, we find no evidence that minimum wage increases reduced net crime, as some proponents hoped. Instead, we find that minimum wage hikes increased property crime arrests among those ages 16 to 24. Specifically, we find that a 10 percent increase in the minimum wage is associated with a 2 percent increase in property crime. Applying our estimates to the $15 minimum wage proposal now before Congress, we estimate that such a policy shock could lead to over 410,000 additional property crimes, generating $2.4 billion in additional crime costs to society.
This conclusion stands in stark contrast to a report released by President Obama’s Council of Economic Advisers (CEA) in April 2016, which concluded that a minimum wage increase to $12 an hour would have led to a 3-to-5 percent reduction in crime. While we respect the team of economists working at the CEA at that time, the report’s conclusion unfortunately rested on the assumption that minimum wage increases would only generate wage gains without any substantial offsetting employment or human capital effects. Our study shows that these effects cannot be ignored.
Fortunately, policymakers need not grapple with the tradeoff of higher wages for some at the expense of fewer jobs and more property crime among others. There are policy alternatives to the minimum wage that better help vulnerable workers and are far better targeted to those most in need.
Expanding the Earned Income Tax Credit (EITC) has been shown to increase income and reduce poverty for many vulnerable workers without the unintended consequences of a higher minimum wage. Because workers have to earn income to receive the EITC, it has the added benefit of boosting employment. It is also far better targeted to the working poor than the minimum wage due to eligibility requirements.
Raising the wages of low-skilled workers is a laudable policy goal. But if a government mandated raise comes at the expense of a job – and induces young jobseekers to earn money through illegal means — then policymakers should look elsewhere for better solutions to reduce poverty.
Joseph J. Sabia is Professor of Economics and Director of the Center for Health Economics & Policy Studies at San Diego State University and the University of New Hampshire.
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