It is a well-established truth that minimum-wage laws hurt many of the people they are intended to help. When lawmakers raise the lowest wage at which someone may legally be employed, workers at the bottom of the economic ladder often find themselves unemployable.
“There’s a virtual consensus among economists that the minimum wage is an idea whose time has passed,” The New York Times editorial board observed back in 1987. “Raising the minimum wage by a substantial amount would price working poor people out of the job market.”
Really, what could be more self-evident? All other things being equal, when you raise the price of something, demand for that something goes down. It’s true of cigarettes, meals in restaurants, airline reservations, and visits to Disney World. It’s just as true of low- and unskilled workers. Make it more expensive to hire marginalized or inexperienced employees and fewer such employees will be hired. In 2021, the nonpartisan Congressional Budget Office calculated the impact of hiking the federal minimum wage to $15 an hour from the current $7.25. Its conclusion was that 1.4 million workers would lose their jobs.
Some politicians and activists may imagine that minimum-wage increases are an effective means to combat poverty and advance social justice. But as a vast empirical literature dating back to the earliest minimum-wage laws confirms, in the real world, such laws all too often have the opposite effect.
When Congress enacted the first federal minimum wage in 1938, great numbers of people ended up with no wages at all. According to the Labor Department, between 30,000 and 50,000 workers were laid off in the first two weeks after the law went into effect. Most of them were Black. “African Americans in the tobacco industry were particularly hard hit,” wrote David E. Bernstein in his 2001 history of labor regulations and Black employment. “In Wilson, N.C., for example, machines replaced 2,000 African American tobacco stemmers in 1939.”
There are other ways in which minimum-wage increases can have unintended negative effects. Companies may choose not to expand. Employers may curtail fringe benefits or cut back on workers’ hours. They may opt to install new equipment rather than hire new employees. They may raise prices or reduce customer service. Some businesses may be forced to close.
Could yet another of those unintended consequences be an increase in homelessness?
That is the conclusion of Seth J. Hill, a political science professor at the University of California, San Diego, who last month published an ingenious working paper analyzing minimum-wage and homelessness data from 100 cities between 2006 and 2019. His findings were striking. When he plotted information from the Department of Housing and Urban Development against changes in state and local minimum wages, he found that “when cities raise their minimum wage by 10 percent, relative homeless counts increase by 3 to 4 percent.”
The results were even more noteworthy when he focused on the actual sums by which minimum wages changed. In municipalities that boosted the lowest legal hourly wage by up to $2.50 per hour, homelessness subsequently rose by an average of 14 percent relative to cities with no minimum-wage change. In municipalities that jacked up their minimum wage by more than $2.50 per hour, homelessness spiked by an average of 23 percent (again, compared to cities with no increase).
Hill’s paper is still a work in progress. But he is a serious scholar who has published more than three dozen peer-reviewed articles to date, and his preliminary results seem remarkably robust. In his calculations, he controls for multiple other factors that can affect the availability of housing in a community. Among them: median income, the size of the working-age population, local rents, and migration of residents into or out of each city. But after crunching the numbers, the pattern is clear: “At-risk populations appear to face higher housing costs with increases in minimum wages.” In cities such as Seattle, San Francisco, and New York, where minimum wage hikes have been steep, homelessness rose steeply as well. In cities where minimum wages were unchanged, such as Atlanta or Montgomery, homeless numbers were lower.
A key point emphasized by Hill is that even if the impact of a minimum-wage increase on the overall job market is relatively modest, it can have an outsize effect on homelessness. “Minimum wage-induced disruptions for only a small number of individuals,” he writes, “can cause meaningful increases in homelessness even if many workers benefit from increases in the minimum wage.” In other words, while a boost in the minimum wage may not make much of a splash in city- or statewide employment statistics, its influence on the homeless population — a much smaller subset of the whole — can be profound.
Why does hiking the minimum wage lead to more homelessness? The reasons aren’t hard to decoct. According to another new study, this one by researchers at the University of California, San Francisco, losing income is the single biggest driver of homelessness, even more than mental illness or drug addiction. By causing marginal workers to lose their jobs, minimum-wage increases exacerbate their economic insecurity and leave them with less ability to pay for housing. And as higher minimum wages raise landlords’ costs, even low-skilled employees who don’t lose their jobs can be faced with rent increases they are unable to afford.
For decades, economists have shown that higher minimum wages, however well-intended, take a toll on the economy’s weakest workers, those most lacking in experience, skill, mental and physical capacity, or personal stability. For workers barely clinging to that bottom rung on the ladder, it is no kindness to push the rung higher. By forcing up the lowest wage at which they can lawfully be employed, government officials make them unemployable. And when they lose their jobs, it isn’t long before some of them end up on the streets.