KC Fed, Report: The Employment Effect of an Increase in the National Minimum Wage, Review of International Evidence
“Since 2015, U.S. lawmakers have contemplated increasing the federal minimum wage substantially to $15. Central to any consideration of a minimum wage hike are the potential effects on employment; however, these effects can be challenging to measure given the limited historical precedent for large, national minimum wage increases in the United States. International evidence may offer evidence on the potential employment effects of national minimum wage increases. These international studies allow us to examine large and rapid changes in minimum wage policy that also reflect various exposures to higher minimum wages across geographies.”
“We review empirical studies in four countries that have changed their national minimum wage. These studies suggest the pace of the minimum wage increase matters in determining the overall employment response. A rapid increase of the minimum wage relative to the median wage could be disruptive to firms operating in competitive sectors that cannot easily pass cost increases through to final consumers. Indeed, a rapid increase in the minimum wage (relative to a more gradual increase) is likely to expose more firms and workers to the minimum wage, resulting in a significant negative employment effect. The analysis of the Hungarian and South Korean minimum wage increases in Harasztosi and Lindner (2019) and Doh and others (2022), respectively, support this view.”
“On the other hand, the experiences of Brazil and Germany suggest that a steady and modest increase in the minimum wage that in turn affects fewer workers in any given year may have no negative employment effects at all. Brazilian data analyzed in Engbom and Moser (2022) and German data examined in Dustmann and others (2022) show that labor reallocation to growing firms with high productivity is important in offsetting the negative employment effect from the conventional labor demand channel.”