Lelo Nxumalo: Do Minimum Wage Increases Really Kill Jobs? Evidence from the "Fight for $15" Era

The debate over minimum wage policy has raged for decades, with economists, policymakers, and business leaders offering sharply different predictions about its effects on employment. Critics warn that raising the minimum wage will force employers to cut jobs, while supporters argue that higher wages boost worker productivity and spending power. But what does the actual data tell us?

Using a comprehensive difference-in-differences analysis and Federal Reserve Economic Data covering 43 U.S. states from 2012-2020 of the "Fight for $15" movement between 2012 and 2020, I provide some evidence about how minimum wage increases actually affect employment in the real world.

The Perfect Natural Experiment

The period from 2012 to 2020 provided economists with an ideal "natural experiment" to study minimum wage effects. Here's why this timeframe was perfect for analysis:

Federal Stability: The federal minimum wage remained frozen at $7.25 per hour since 2009, creating a stable baseline for comparison.
State-Level Variation: The "Fight for $15" movement inspired 29 states to raise their minimum wages above the federal level, while 14 states kept theirs at $7.25.
Staggered Timing: States didn't all change their wages at once. Instead, they implemented increases in different years (2013-2020), allowing us to compare states before and after their policy changes.
Clean Controls: Unlike longer time periods that mix federal and state changes, this era gives us true "control" states that never raised their minimums.

The Data: A Comprehensive View

My analysis draws on high-quality federal economic data covering all 43 U.S. states from 2012 to 2020:

Employment Data: Monthly employment figures from the Federal Reserve Economic Data (FRED) system, aggregated to annual averages and converted to logarithmic form to measure percentage changes.
Minimum Wage Data: Official state minimum wage rates from FRED's comprehensive database, capturing all policy changes during this period.

Treatment Variation:

29 states increased minimum wages above federal levels
14 states maintained the $7.25 federal minimum throughout
Peak adoption years were 2013 (10 states) and 2014 (7 states)

The Method: Difference-in-Differences Analysis

To isolate the causal effect of minimum wage increases on employment, I used a "difference-in-differences" approach— common for policy evaluation in economics.

The Logic: Compare employment changes in states that raised minimum wages to employment changes in states that didn't, before and after the policy changes. This method controls for:

National economic trends affecting all states
Permanent differences between states
Other state-specific policies implemented at different times

Two Approaches:

Two-Way Fixed Effects (TWFE): Estimates the average employment effect across all minimum wage increases
Event Study: Tracks employment effects year-by-year around the time of policy adoption

Finding: Small Effects, Big Implications

The Overall Picture

Our analysis reveals that minimum wage increases during the "Fight for $15" era had small negative effects on employment:

TWFE Results: 1.6% decrease in employment (marginally significant, p = 0.0504)
Event Study: 0.83% decrease in the year of adoption (statistically significant, p = 0.0136)

The Event Study: A Detailed Timeline

The event study provides the most compelling evidence, tracking employment effects from 5 years before to 5 years after minimum wage adoption:

What This Graph Shows:

Pre-Treatment (Years -5 to -2): The flat, statistically insignificant coefficients confirm that treated and control states had similar employment trends before policy changes—validating our research design.
Year of Adoption (Year 0): A statistically significant drop of 0.83% in employment, shown by the negative coefficient that doesn't overlap with zero.
Post-Treatment (Years 1-5): Effects persist but become statistically indistinguishable from zero, suggesting either adaptation by businesses or statistical uncertainty due to smaller samples.
The Pattern: An immediate, modest employment reduction that appears to stabilize rather than compound over time.

Putting Results in Context

How Do These Findings Compare to Other Studies?

The results align closely with the modern economic consensus:

Similar Magnitudes: Recent high-quality studies find employment elasticities between 0.01 and 0.04, consistent with my findings.
Methodological Rigor: Unlike older studies that found larger effects, modern research using sophisticated methods (like my approach) consistently finds smaller impacts.
Meta-Analysis Support: When economists correct for publication bias—the tendency for journals to publish more dramatic results—the employment effects of minimum wages largely disappear.

The Economic Significance

While statistically detectable, these effects are economically modest:

Small Relative to Wage Gains: A 1.6% employment reduction is tiny compared to typical minimum wage increases of 15-30%.
Net Worker Benefits: For every 100 low-wage workers, roughly 98 keep their jobs with higher pay, while 2 might lose employment.
Aggregate Impact: The total income gained by workers receiving raises far exceeds income lost by those potentially losing jobs.

What This Means for Policy

The Case for Gradual Increases

Our findings support the approach taken by most "Fight for $15" states: gradual, predictable minimum wage increases. The data suggests:

Modest increases don't trigger mass layoffs
Businesses can adapt through productivity improvements, reduced turnover, or small price adjustments
Workers benefit substantially from higher wages with minimal employment risk

Addressing Common Concerns

"Job Killer" Claims: The data doesn't support predictions of massive job losses from minimum wage increases.
Small Business Impact: While some adjustment occurs, the effects are far smaller than often claimed by business groups.
Economic Growth: States that raised minimum wages didn't experience employment collapses or economic downturns.

Limitations and Future Research

What This Study Doesn't Capture

Substitution Effects: Our analysis measures net employment changes but may miss substitution between different types of workers.
Long-Term Effects: While I track effects for up to 5 years, even longer-term impacts remain uncertain.
Heterogeneous Effects: The impact likely varies across industries, regions, and demographic groups.

The Ongoing Debate

While my evidence supports modest minimum wage increases, the debate continues over:

Optimal minimum wage levels
Regional variation in appropriate wages
Alternative policies to support low-wage workers

The Bottom Line

The "Fight for $15" era provided a remarkable natural experiment in minimum wage policy, and the results are reassuring for supporters of higher wages. Minimum wage increases during 2012-2020 had small negative employment effects that were far outweighed by the benefits to workers who kept their jobs.

This doesn't mean minimum wages can be raised without limit—there's certainly some level that would cause substantial job losses. But the evidence suggests that the moderate increases implemented by most states during this period struck a reasonable balance between supporting workers and maintaining employment opportunities.

For policymakers considering minimum wage increases, the message is clear: done thoughtfully and gradually, minimum wage increases can improve worker welfare without devastating employment. The data supports continued experimentation with higher minimum wages, especially in high-cost regions where current wages provide inadequate living standards.

Full methodology and results are available upon request.