For Immediate Release: January 26, 2021
Contact: Professor Michael Reich, mreich@econ.berkeley.edu
Berkeley, CA—As the incoming administration pushes for a $15 minimum wage and outlines plans to advance racial equity, a new study from economists Dr. Michael Reich of UC Berkeley and Dr. Jesse Wursten of KU Leuven, a Belgian university, provides the first comprehensive examination of how state and federal minimum wage increases between 1990 and 2019 affected racial economic inequality. Using five difference causal methods, they find that the policies reduced Black-White wage gaps by a substantial amount—60 percent among less-skilled workers. Minimum wages increased earnings among all race/ethnic/gender groups, did not cause disemployment effects for any group, and increased employment among Black workers.
Dr. Wursten remarked, “We used five different methods, and they all agreed. This is rare in economics research.”
Wursten and Reich also examine why minimum wages reduce racial inequality. Low-wage Black workers on average live farther from jobs and are less likely to own cars. Minimum wage increases allow Black workers to acquire cars, greatly extending the job opportunities within their grasp. Minimum wages also reduced racial gaps in employee turnover, further indicating that the policies enhance job opportunities for Black workers.
Professor Reich noted, “We show that higher minimum wages lead to virtuous circles, in which higher earnings empower Black workers to overcome institutional racism.”
This study adds to the growing body of recent research, some of it by Professor Reich, that has changed economists’ thinking on minimum wage effects. In recent decades, the minimum wage pendulum among economists has shifted from a concern that minimum wages cause unemployment to showing that minimum wages not only increase earnings without disemployment effects, but also generate other positive side effects, such as reducing child poverty and neglect, improving adult mental and physical health and reducing racial inequality.
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The Center on Wage and Employment Dynamics (CWED) is a project of the Institute for Research on Labor and Employment (IRLE) at UC Berkeley. IRLE connects world-class research with policy to improve workers’ lives, communities, and society.