The Employment Effect of an Increase in the National Minimum Wage: Review of International Evidence

Abstract

Taeyoung Doh is a senior economist at the Federal Reserve Bank of Kansas City. Luca Van der Meer is a research associate at the bank. This article is on the bank’s website at www.KansasCityFed.org The U.S. federal minimum wage has been fixed at $7.25 since 2009; meanwhile, the U.S. economy has been anything but static. A decade of modest growth, a seismic pandemic, and a recent period of high inflation have all combined to erode the spending power of a $7.25 minimum wage. Income disparity has also grown over the last decade: a standard index for measuring income dispersion, the Gini coefficient, has grown substantially. To address these problems, as early as 2015 U.S. legislators introduced a proposal to increase the federal minimum wage from $7.25 per hour to $15 per hour, but this proposal never reached fruition. One challenge in implementing minimum wage increases is estimating the potential effect on employment. Although moving to a $15 federal minimum wage would not be as dramatic an increase in 2022 as in 2015 due to nominal wage increases over those seven years, such an increase would still be historically unprecedented. As a result, past modest increases in the U.S. federal minimum wage are unlikely to provide much insight into employment effects. One alternative is to examine minimum wage changes at the state or local level, as individual states and cities have instituted comparably large minimum wage changes. However, studies on state and local wage changes