Proposals to increase the minimum wage are popping up quickly across the country. Recently, California raised its minimum wage for fast food workers to $20, with plans to go as high as $25. Meanwhile, Washington state is considering a minimum of $25, and in a notable campaign move, mayoral candidate Zoran Mamdani is advocating for a $30 minimum wage in New York City.
Supporters of a higher minimum wage often argue that it could help reduce income disparities among racial groups by uplifting low-wage black workers. However, emerging research indicates that the reality might be quite the opposite. Higher minimum wages may actually limit job opportunities for black workers, worsening racial income gaps.
The rationale behind the belief that raising the minimum wage should decrease income disparities seems straightforward: since black workers typically earn less, increasing wages should help level the playing field. Yet, the full picture is more complex.
Studies suggest that higher minimum wages often lead to job losses for those earning the lowest wages. And since black workers, on average, earn less than their white counterparts, it raises the question—could higher minimum wages exacerbate racial disparities by leading to lower employment rates for black individuals?
Research conducted by Jyotsana Kala and myself shows that while a higher minimum wage has little effect on white workers, it can significantly reduce job availability and earnings for black workers, actually worsening racial disparities. It seems like a classic case of unintended consequences.
Milton Friedman warned us decades ago that increasing the minimum wage could negatively impact black workers more than whites, given that many black workers often have lower wages and skill levels. Yet, despite this historical context, some, like a recent piece in The Economist, suggest that raising the minimum wage could help reduce racial income disparities. They seem to gloss over conflicting evidence from the same period, which indicated that job losses among black workers surged in such scenarios.
Our study uses contemporary data from the American Community Survey, covering the period from 2005 to the onset of the pandemic. This data allows for a more nuanced analysis of how minimum wage changes affect different demographic groups, such as young, low-skilled black workers. We’ve examined numerous significant minimum wage hikes made at both state and local levels.
The findings from this research are both striking and somewhat surprising. A higher minimum wage doesn’t result in a significant increase in unemployment for black workers compared to whites—it varies greatly depending on the specific group of black workers considered.
For instance, our estimates suggest that a 10% hike in the minimum wage could lead to a 4% decrease in employment among certain low-skilled black worker factions. Yes, the rise in minimum wage does boost income for those who keep their jobs at the lower end, but for many low-wage black workers, the resulting reductions in job availability can overshadow these increases, especially compared to their white peers.
This downturn in job prospects among black workers is compounded by the reality of residential segregation within the U.S. Most black Americans reside in predominantly black neighborhoods, so the adverse effects of the minimum wage increase tend to be concentrated there. This situation may lead to various negative outcomes for those areas, such as decreased employment rates, lower demand for local businesses, and even heightened crime rates due to a lack of job opportunities.
We’ve long understood that raising the minimum wage rarely translates to improved living standards. Our findings not only fail to alleviate racial disparities but also show that they might actually be increased by these wage hikes. Politicians focused on worker welfare should heed this evidence and consider alternative solutions.
