On paper, a minimum wage increase may sound like a relief for workers, but it could actually mean smaller paychecks and cuts in benefits such as healthcare and retirement plans.
Income and benefit cuts hurt women, people of color, and young people, who are most likely to be working minimum wage and retail jobs — the exact people liberals claim to be caring for when pushing minimum wage hikes nationwide.
A new study by professors from the Georgia Institute of Technology, Cornell University, and the University of Washington found that when a retail chain in California raised its minimum wage, it hired more people but gave fewer hours per person. In essence, people who already had jobs saw their hours cut, making them less likely to be eligible for benefits, and experienced reduced “consistency of weekly and daily schedules.”
The researchers reported that as the minimum wage increased by $1, “the number of workers scheduled to work per week increases by 27.7%, and the hours assigned to each worker decrease by 20.8%.” The researchers reported that, in California, the number of average hours per worker per week fell from 24 to 19 hours. As a result, the average Californian minimum-wage worker saw a wage compensation drop of 13.6% in spite of the wage increase.
This new research examined data from 2015 to 2018 supplied by an unnamed “chain of fashion retail stores.” In the research sample, 45 stores of the fashion retail brand were in California (home to a minimum wage hike), and 17 were in Texas (no hike).
California’s minimum wage hike largely didn’t affect the total number of hours worked per store, the researchers found. Instead, the company attempted to cut costs by changing who was working those hours.
The Affordable Care Act requires employers to offer health insurance to employees working at least 30 hours per week (or 130 hours per month), and the Employee Retirement Income Security Act stipulates a “1,000-hour rule.” This means employees who have completed 1,000 hours of service in a 12-month period, which nets out to about 20 hours per week if working year-round, become eligible to participate in any retirement plan that is offered to other employees.
So, how did the company respond to a government-mandated minimum wage increase? The researchers estimated that, in an average California store, “the percentage of workers with weekly hours longer than 20 and 30 decreases by 23.0% and 14.9%, respectively.”
Translation: Many workers experiencing a minimum wage increase conversely experience cuts in health insurance and retirement benefits.
Making matters worse, the California stores also showed that employees’ schedules “exhibit greater fluctuation from day to day and from week to week, making it challenging to secure financial stability and coordinate with a second job, childcare, or other personal issues.”
This is particularly hard for female employees, who often are also trying to juggle childcare and education. This is also a big problem for historically vulnerable demographic groups, such as minorities and young people who work in retail. The retail industry is one of the largest employers of minimum wage workers, the authors report, “accounting for about 23% of minimum wage labor in the United States.”
Those who support minimum wage hikes, believing that they will help struggling workers, should take note of these findings, which suggest that these efforts backfire. Policymakers, especially those in California, should also reconsider their policy approach: COVID-19 triggered a migration trend of people streaming out of California and into Texas, and future minimum wage hikes by the Golden State could encourage further exits for truly golden opportunities elsewhere.
Carrie Sheffield is a senior fellow at the Independent Women’s Forum.
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