What Happened When These Places Raised the Minimum Wage to $15

Gabrielle Olya
GOBankingRates September 24, 2019

The Economical Impact of Increasing the Minimum Wage to $15

The federal minimum wage — $7.25 per hour — hasn’t changed since 2009, even though the cost of living has risen rapidly. Labor activists long have been asking for a raise in the minimum wage, and in July 2019, the U.S. House of Representatives passed a bill that gradually would raise the federal minimum wage from $7.25 to $15 per hour by 2025. Although it’s unlikely the bill will pass in the Senate, some individual states, cities, counties and companies already have implemented a $15 minimum wage or approved plans that eventually will make the minimum wage $15.

Here’s what a $15 minimum wage would mean for workers, employers, consumers and the economy, and how this higher minimum wage has impacted the places that already have it.

Last updated: Sept. 24, 2019

Federal vs. State Minimum Wage

The federal minimum wage is the base minimum wage any individual state can mandate. States can pass their own laws to implement a minimum wage that is greater than the federal minimum wage. Currently, 29 states plus Washington, D.C., Guam and the U.S. Virgin Islands have a minimum wage that exceeds the federal minimum wage.

Why Raise the Minimum Wage?

A person working full time and earning the federal minimum wage of $7.25 an hour would make roughly $15,000 a year. That would put a family of two or more with no additional income below the federal poverty level of $16,910.

Over 1 Million Americans Would Rise Above Poverty Level If the Federal Minimum Wage Increased

If the U.S. minimum wage were raised to $15 by 2025, the nonpartisan Congressional Budget Office estimated that 17 million workers would see a boost in their wages, according to a CNBC report. In addition, another 10 million Americans who now earn slightly more than $15 an hour might also see a wage increase, according to the report.

The increase in pay for these workers would move 1.3 million Americans above the poverty level, the CBO projected.

The Potential Downsides of an Increased Minimum Wage

A higher minimum wage could have negative repercussions for both workers and employers, according to the CBO analysis.

The CBO estimated that 1.3 million Americans could lose their jobs if a wage hike were enacted, although some economists believe the actual number would be much lower.

The CBO also said that an increase in the minimum wage would “reduce business income and raise prices” as companies pass on the higher costs of labor to consumers.

In addition, it could slightly reduce the U.S.’s total output.

Some Research Disputes the CBO Findings

Although the CBO predicts that raising the minimum wage would have negative effects on employment, some research contradicts these findings. A 2019 study by UC Berkeley’s Center on Wage and Employment Dynamics looked at sub-state wage variations that would echo what would happen if the minimum wage moved closer to the median wage across the U.S.

According to a press release, the study “did not detect adverse effects on employment, weeks worked or weekly hours among workers with a high school degree or less.”

“The results of our research show that we can raise pay to $15, even in low-cost states,” said Anna Godoey, one of the study authors, in the press release. “The data show that the minimum wage has positive effects, especially in areas where the highest proportion of workers received minimum wage increases. We also found reduced household and child poverty in such counties.”

States That Have Passed a $15 Minimum Wage

It remains to be seen whether a federal minimum wage of $15 will pass in the Senate, but several states have passed their own legislation in recent years to raise the minimum wage for its employees, with seven states passing legislation to raise the minimum wage to $15 over the next few years:

  • California minimum wage: The state minimum wage will be $15 by January 2022.
  • Washington, D.C., minimum wage: The minimum wage will be $15 by July 2020; it is currently $14.
  • Illinois minimum wage: The state minimum wage will be $15 by January 2025.
  • Maryland minimum wage: The state minimum wage will be $15 by January 2025.
  • Massachusetts minimum wage: The state minimum wage will be $15 by January 2023.
  • New Jersey minimum wage: The state minimum wage will be $15 by January 2024.
  • New York minimum wage: The state minimum wage will be adjusted annually to account for inflation beginning in 2021 until it reaches $15.
  • Connecticut minimum wage: The state minimum wage will be $15 by June 2023.

Cities With a $15 Minimum Wage

Federal and statewide changes to the minimum wage will take longer to roll out, but some cities already have enacted — or have plans to enact — a $15 minimum wage. These cities include:

  • New York City: A $15 minimum wage went into effect in 2018.
  • Seattle: As of 2019, the minimum wage for large employers (those with more than 500 employees) is $16; it is $15 for smaller employers.
  • San Francisco: A $15 minimum wage went into effect in July 2018; the minimum wage rose to $15.59 in July 2019.
  • Los Angeles: The current minimum wage is $14.25; it will rise to $15 in July 2020.

Major Companies With a Minimum Wage of $15 or Higher

Several major companies also have raised — or made plans to raise — their minimum wage to $15 an hour or more:

  • Target: Announced in April 2019 that its minimum wage would rise to $13 in June 2019, and to $15 an hour by the end of 2020.
  • Bank of America: Announced in April 2019 that its minimum wage would rise to $17 in May 2019 and that it would continue to raise the minimum wage until it reached $20 in 2021.
  • JPMorgan Chase: Announced in January 2018 that its minimum wage would rise to at least $15 an hour and up to $18 an hour, depending on employee location, effective in February 2018.
  • Facebook: Raised its minimum wage for contractors to $15 an hour in 2015; raised the minimum wage for contractors again in May 2019 to $20 per hour in the San Francisco Bay Area, New York City and Washington, D.C., and $18 per hour in Seattle.
  • Amazon: Announced in October 2018 that it would increase its minimum wage to $15 an hour, effective November 2018.
  • Costco: Announced during its quarterly earnings call in March 2019 that it had raised the minimum wage to $15 an hour for its U.S. employees, Business Insider reported.
  • Charter Communications: Announced in February 2018 that it would increase its minimum wage to $15 an hour within a year.
  • Ben & Jerry’s: Raised its minimum wage to $16.92 in 2015.

How Minimum Wage Increases Have Affected Major Cities

Most of the places that currently have a $15 minimum wage haven’t had it implemented for long enough to see the true effects of the increase, but a 2018 study by UC Berkeley’s Center on Wage and Employment Dynamics examined what happened in six major cities that increased their minimum wage to more than $10 by the end of 2016: Chicago, Oakland, San Francisco, San Jose, Seattle and Washington, D.C. The study focused specifically on the food services industry, which is a major employer of low-wage earners.

The study concluded that the cities had stronger private sector growth than the average comparable county. It also found that raising the minimum wage by 10% increased earnings among food services workers by 1.3% to 2.5%. And, significantly, the study found that the increase in the minimum wage in these cities did not lead to job loss.

“We cannot detect significant negative employment effects,” the study concluded.

New York City's Minimum Wage Increase

In 2016, New York passed a law that would raise the minimum wage in New York City to $15 per hour by the end of 2018. The bill mandated that large employers (of 11 or more workers) raise the minimum wage to $11 and small employers (of 10 or fewer) raise the minimum wage to $10.50 by Dec. 31, 2016. The minimum wage rose to $13 for large employers and $12 for small employers on Dec. 31, 2017; $15 for large employers and $13.50 for small employers on Dec. 31, 2018; and it will be $15 for all NYC employers by Dec. 31, 2019.

1. What Happened: Restaurants Reportedly Reduced Employee Hours, Eliminated Jobs

In response to New York City’s latest minimum wage increase — it became $15 for most employers on Dec. 31, 2018 — some restaurant owners said they had to cut employee hours and raise prices, CBS News reported. Jon Bloostein, who operates six New York City restaurants that employ between 50 and 110 people each, said he no longer uses hosts and hostesses during less busy times and began staggering employee start times. He also increased menu prices.

“As a result [of the minimum wage hike], it will cost more to dine out,” he told CBS News. “It’s not great for labor, it’s not great for the people who invest in or own restaurants, and it’s not great for the public.”

Bloostein’s views aren’t unfounded. A 2019 survey conducted by the NYC Hospitality Alliance found that in response to rising labor costs, 76.5% of full-service restaurant owners reduced employee hours and 36.3% eliminated jobs.

2. What Happened: Restaurant Workers Saw Major Wage Increases

Despite the NYC Hospitality Alliance report, The New School’s Center for New York City Affairs said it did not see massive job loss in the restaurant industry, which has the highest proportion of workers affected by the minimum wage of any major industry.

“The New York State minimum wage rose in phases from $7.25 an hour at the end of 2013 to $13.50 during 2018.

During this period, New York City has seen a strong economic expansion of the restaurant industry, outpacing national growth in employment, annual wages and the number of both limited- and full-service restaurant establishments,” the report stated.

“Compared to 12 large cities around the country that did not have any minimum wage increases from 2013-18, New York City’s restaurants generally have seen stronger job growth.”

It also concluded that there were no negative employment effects and “sizable” average wage gains for restaurant employees, “with 2013-18 real wage increases averaging 15-23% for full-service and 26-30% for limited-service restaurant workers.”

3. What Happened: The Unemployment Rate Rose

The unemployment rate in New York City was 4.0% in December 2018 and increased since the latest minimum wage increase, to 4.1% in January, 4.2% in February and 4.3% in March. It has since remained steady at 4.3%, according to Bureau of Labor Statistics data.

It’s unclear whether this is a direct effect of the wage increase, or whether there are confounding factors.

Seattle's Minimum Wage Increase

Seattle was the first major city to pass a bill that would increase the minimum wage to $15 an hour. The bill, which went into effect in 2015, made the minimum wage for employers who don’t offer medical benefits to their employees $11 as of April 2015; $12 for small employers (500 employees or fewer) and $13 for large employers as of 2016; $13 for small employers and $15 for large employers as of 2017; $14 for small employers and $15.45 for large employers as of 2018; and $15 for small employers and $16 for large employers as of 2019.

1. What Happened: The Number of Jobs in Restaurants and Bars Increased

Although some business owners, particularly in the food industry, threatened to leave Seattle amid growing wage requirements, it doesn’t seem that many have followed through. According to data from the Federal Reserve Bank of St. Louis and the Bureau of Labor Statistics, the number of jobs in restaurant and bars has been on the upswing since Seattle’s minimum wage laws went into effect in 2015.

University of Washington research published in 2018 found that “fewer than one in four employers reported reducing their workforces through cuts in hours or headcount” as a result of the wage hikes.

2. What Happened: Employers Raised Wages — and Prices

The University of Washington researchers found that “many firms (almost half) raised wages of employees above the newly set minimum wage rates.” However, it also found that to compensate, “about half of all employers reported raising prices to offset increased labor costs.” These price increases were “more likely to occur in the food and accommodation sector than other types of industry sectors,” the study found.

3. What Happened: Low-Wage Workers With Above-Median Experience Saw an Increase in Earnings

A National Bureau of Economic Research working paper published in 2018 found that “on net, the minimum wage increase from $9.47 to as much as $13 per hour raised earnings by an average of $8-$12 per week.

The entirety of these gains accrued to workers with above-median experience at baseline; less-experienced workers saw no significant change to weekly pay.”

The pay bump for more skilled workers can be attributed to the fact that these are the employees that businesses want to retain if they have to make job cuts due to higher wages.

“Business owners are willing to pay higher wages, but one of the things they’re looking for is workers who can be productive from their first day on the job,” Jacob Vigdor, one of the study’s lead researchers, told the Seattle Times.

San Francisco's Minimum Wage Increase

San Francisco passed a proposition in November 2014 that would continue to raise the minimum wage every year. Under this proposition, the minimum wage was raised to $12.25 in May 2015, to $13 in July 2016, to $14 in July 2017 and to $15 in July 2018.

The minimum wage was raised to $15.59 in July 2019 based on the annual increase in the Consumer Price Index from the previous year.

1. What Happened: Low-Rated Restaurants Were More Likely To Flee the City

A Harvard Business School research paper found that restaurants with low- and mid-level Yelp ratings were more likely to be affected by a change in the minimum wage.

“We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit,” the study stated. “Restaurants with lower ratings are closer to the margin of exit at all observed minimum-wage levels and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a $1 increase in the minimum wage leads to a 14% increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp) but has no discernible impact for a 5-star restaurant (on a 1 to 5-star scale).”

The study also found that “lower-rated restaurants also increase prices in response to minimum-wage increases.”

2. What Happened: Nearly One-Third of San Jose's Workforce Would See an Increase in Earnings

Because San Francisco’s minimum wage increase to $15 happened so recently, there is not much data available on the actual changes that have taken place as a result.

However, a 2016 policy brief by UC Berkeley’s Center on Wage and Employment Dynamics examined what the effects of a $15 minimum wage in nearby San Jose by 2019 were projected to be. (Minimum wage increases applied to the San Francisco-Oakland-San Jose, California, metropolitan area.) The paper determined that an increase in the minimum wage would lead to an increase in earnings for 115,000 workers in San Jose — 31.1% of the city’s workforce. For those who would get a raise under the increase, their pay would go up by 17.8%.

3. What Happened: Average Consumer Prices Would Rise 0.3%

The policy brief projected that businesses would make up for the increase in payroll costs by increasing consumer prices by 0.3% by 2019. However, the paper noted that the increase in restaurant prices would be greater — an estimated 3.1%.

4. What Happened: Employment Growth Would Slow

The UC Berkeley Center on Wage and Employment Dynamics policy brief projected that employment growth would slow as the minimum wage grew. The paper estimated that there would be 960 fewer jobs in San Jose by the end of 2019.

Should the U.S. Raise the Federal Minimum Wage to $15 an Hour?

The cities that have a $15 minimum wage — and the companies affected by it — haven’t had this minimum wage for long, so it’s hard to say definitively what the effects of raising the minimum wage across the country would be. Here’s a summary of what’s happened so far:

  • Although a survey of New York City restaurant owners found that the majority said they would be reducing restaurant worker hours and that nearly one-third would be eliminating jobs, a study of the effect of NYC wage increases from 2013 to 2018 on the restaurant businesses and its employees found that there were no negative employment effects and sizable average wage gains for restaurant employees.
  • NYC unemployment rose 0.3% from the time the latest wage increase went into effect (Dec. 31, 201 through July 2019, although this could be attributable to other factors.
  • Fewer than a quarter of Seattle business owners reduced their employee hours or cut jobs because of the rise in minimum wage requirements, and the number of restaurant and bar jobs actually grew since the new laws went into effect in 2015.
  • Experienced low-wage workers in Seattle saw increases in their weekly pay; low-skilled low-wage workers saw little to no difference in their pay.
  • NYC and Seattle businesses that employ low-wage workers — who fall heavily into the food and accommodations sectors — increased prices for consumers as a result of the higher cost of labor.
  • Low- and medium-rated San Francisco restaurants were more likely to exit as minimum wage requirements increased; minimum wage increases did not affect highly rated restaurants.

Based on these findings, it’s clear that there are pros and cons to raising the minimum wage to $15 an hour. Only the passage of time will let us see how a higher minimum wage will affect workers, employers and consumers in the long-term.