The State of the Minimum Wage: Federalism, Economic Policy, and Workers’ Well-Being

Introduction

Should the minimum wage be increased? The government mandated wage floor for workers is one of the most hotly debated questions in contemporary economics, and in political discourse more generally. In this essay, we have three goals. First, we discuss the politics of the minimum wage in the United States, with special attention to the sizable and rich variation across the fifty American states. Despite extensive public support for increasing the minimum wage, there has been little recent action at the federal level. Instead, state governments have been far more active in increasing the minimum wage, often through the use of direct democracy. In the wake of the results of the 2016 state legislative elections that further enhanced Republican control of state governments, we discuss the importance of federalism and assess what the future may hold for minimum wage policies around the nation.

Second, we take a wider view of the debate and examine competing theoretical arguments (and, when available, empirical evidence) about the advantages and the disadvantages of increasing the minimum wage. For example, while supporters of increasing the minimum wage argue it will lead to a higher standard of living among low income workers and their families, opponents argue that tampering with market forces by artificially raising the wage floor will lead to job losses and fewer employment opportunities for working class citizens. Our aim is to take stock of these arguments, particularly as they relate to workers’ well-being, and present them in a cogent format.

Third, as a case study of the potential effects of raising the minimum wage, we present preliminary results from an original empirical analysis that assesses how state minimum wage increases impact the quality of life that citizens’ experience. Specifically, using public opinion surveys that ask citizens to evaluate how satisfied they are with their life, we compare changes in subjective well-being among low, middle, and high income citizens in states that did and did not increase their minimum wage between 2010 and 2013. The analysis is, we hope, a modest contribution to the ongoing research program aimed at better understanding the broad societal effects of federal and state minimum wage policies.

In sum, our aim in this essay is to contribute to the growing national discussion about the future of minimum wage policy and its implications for working class Americans.

The Politics of the Minimum Wage in the United States

According to a recent Pew Research Center poll, 73% of Americans support raising the federal minimum wage from $7.25 to $10.10 per hour (Desilver 2015). Supermajorities of Democrats (90%) and Independents (71%) support raising the minimum wage, and even a majority of self-identified Republicans (53%). Moreover, a recent Gallup poll reveals that 56% of Americans support increasing the federal minimum wage up to $15 per hour by the year 2020 (Smith and Newport 2016). While this larger increase includes a more notable percentage that oppose the idea (36%), it is clear from these survey data that a majority of Americans think that the federal minimum wage ought to be increased.

Perhaps mindful of this widespread public support, both 2016 major party nominees for president ultimately supported some sort of increase in the federal minimum wage. Hillary Clinton first proposed a $12 federal minimum wage, and then subsequently supported an increase to $15. This change in her policy position was, at least in part, due to the unexpected competition she faced from Bernie Sanders during the campaign for the Democratic nomination. Her campaign also argued that she “believes that we should go further than the federal minimum wage through state and local efforts” (LoBianco 2016). On the Republican side, Donald J. Trump first stated that wages are “too high” before offering support for a $10 minimum wage. However, his endorsement of increasing the minimum wage prompted some criticism from fellow Republican politicians during the primary campaign (Kludt 2016). In addition, after winning the election, Trump subsequently nominated Andrew Puzder, who opposes the minimum wage, for the position of Secretary in the US Department of Labor (however, Puzder withdrew his name from consideration before Senate confirmation hearings began).

Despite the broad public support referenced above, the federal minimum wage was largely stagnant for more than 20 years before being increased as part of the Fair Minimum Wage Act of 2007 that raised the minimum wage incrementally in three stages from $5.15 per hour in 2007 to $7.25 in 2009. After recapturing the majority in the House of Representatives in 2006 after being in the minority for 12 years, the bill passed by a comfortable margin in the House with all 233 Democrats voting in favor of the bill along with 83 Republicans. Yet, facing opposition from President Bush and Republicans in the Senate that prevented Democrats from a 60 vote supermajority, congressional Democrats relented to a series of compromise amendments that included significant tax cuts and attaching the legislation to a larger omnibus bill that included funding for Hurricane Katrina disaster relief and additional support for the war in Iraq.

Since then, efforts to increase the federal minimum wage beyond $7.25 have proved unsuccessful as congressional Republicans in Washington have been successful at blocking recent Democratic proposals. Based on this impasse, many states and cities have chosen to act on their own. This is one of the advantages of federalism – states are able to act and respond to federal inaction. Today, 29 states have minimum wages higher than the federal level according to the National Conference of State Legislatures (2016). Not all states have taken such action, however, as thirteen states have a minimum wage at the same $7.25 level as the federal standard, two states have minimum wages lower than the federal standard, and six states have no minimum wage policy at all.^[1] As states pursue different courses of action on this policy question, we have started to see a widening in the variation in state minimum wage laws. As a means of condensing this information into one place, Table 1 reports the current minimum wage in each state, when it was most recently increased, and the method by which the increase was approved. Of the 29 states that have minimum wages higher than the federal level, 15 are a result of a law passed by the state legislature and signed by the governor (National Conference of State Legislatures 2016). For example, during the 2014 legislative session, state legislatures in ten states enacted increases. Moreover, three states increased their minimum wage just in 2016 via this route, including California and New York. The remaining 14 states with higher minimum wages than the national rate passed their increases via the popular initiative process.^[2] According to the Initiative and Referendum Institute (2016), four states increased their minimum wage via the initiative in 2014, and another four in 2016.

There are also reasons to suspect that this variation across states will widen even further in upcoming years. After the November 2016 elections, the legislature and governor’s mansion are controlled by a single party in 31 of the 50 states. Of these 31, only six states are under Democratic control. These include California, Connecticut, Delaware, Hawaii, Oregon, and Rhode Island – all six of which already have higher minimum wages than the federal level based on laws passed by their state legislature. Indeed, states controlled by the Democratic Party can use the method of representative democracy to implement increases in the minimum wage.

But what of the 25 states under unified Republican control? Eight of these states have minimum wages higher than the federal minimum. Yet, only one of them (Michigan) passed an increase via the state legislature while under Republican control. The remaining seven states (Arkansas, Arizona, Florida, Missouri, Nebraska, Ohio, and South Dakota) all passed increases via the initiative process. Thus, to have any prospect of success in increasing the minimum wage in a state governed by a Republican legislative majority, it appears citizens may need to have access to direct democracy institutions. The remaining 17 states under unified Republican control have a state minimum wage that is the same or lower than the federal minimum wage. Five of those states have the initiative process (Idaho, North Dakota, Oklahoma, Utah, and Wyoming) – which leaves 12 states under unified Republican control without the citizen initiative or a state government likely to pass an increase in the minimum wage.

There is little reason to suspect that states under Republican control without the citizen initiative are currently responsive to state public opinion. For example, a 2015 poll of Indiana residents found that 64% supported legislation raising the state’s minimum wage from $7.25 to $10.10 per hour. While this includes a majority of support from Democrats (82%) and Independents (64%), even 46% of self-identified Republicans supported an increase (Hoosier Survey 2015). Yet, a bill aimed at increasing the state’s minimum wage did not make it out of committee along a party line vote. Therefore, we predict that supporters of a minimum wage increase in Indiana – and states like Indiana under Republican control and without the ballot initiative – are unlikely to see success in the foreseeable future.

As we survey the American political landscape more broadly, we note that 60% of citizens live in a state where political decisions are decided by unified party government. Yet, we know that vigorous competition between the parties for control of government has many positive virtues. For example, more party competition has been linked with higher levels of voter turnout, political engagement, and political efficacy (Flavin and Shufeldt 2015, 2016a). Another theorized outcome of competition is better political representation – policies that align more closely with the preferences of its citizens (MacRae 1952; Griffin 2006). The evidence suggests that minimum wage increases closely mirror public opinion in states with greater party competition. Specifically, of the 19 states that have divided party control, 74% (14) have a state minimum wage higher than the federal level. By contrast, only 26% of these states (5) have a state minimum wage at or below the federal level.

Since 2009, federal action toward increasing the minimum wage any further has stalled. With the election of Donald J. Trump and as signaled by his initial nomination of Andrew Puzder (an opponent of the minimum wage) as the Secretary of the Labor, we believe that the probability that the federal minimum wage will be increased in the next 4 years is low. As a result of federal inaction, the only movement on the issue is likely to happen at the state and local level. As referenced above, in states where the two parties fight closely for control of government, there is a greater likelihood of a minimum wage higher than the federal rate. Moreover, regardless of competition, those living in states under unified Democratic Party control or those in states with the ballot initiative are able to get minimum wage policies that reflect their preferences for an increase. Therefore, federalism provides some people the opportunity to get their preferences translated into policy – but not everyone.

Arguments for and Against Raising the Minimum Wage

Next, we take a wider view of the debate and examine competing theoretical arguments (and, when available, empirical evidence) about the advantages and the disadvantages of increasing the minimum wage. In doing so, we cast a particular eye toward how these well-tread debates apply to a more specific question: whether increasing the minimum wage has the potential to improve the quality of life that working class citizens experience.

The first argument in favor of raising the minimum wage is also the most simple and intuitive: low wage workers stand to earn higher incomes as the minimum wage is increased. More money, specifically more individual income, is particularly important as it helps people meet their most basic needs (Veenhoven 1991; Diener and Biswas-Diener 2002; Frey and Stutzer 2002). To put this in perspective, the difference in the pre-tax income of a minimum wage employee working 40 hours a week in Washington state (which has one of the highest state minimum wages at $11.00) and Georgia or Wyoming (which have the lowest state minimum wage at $5.15) is almost $12,000 a year. Even after taking into account cost of living differences, this real difference in minimum wage policy has a tangible impact on the ability of low income workers to meet their most basic needs like food, clothing, and shelter, which is particularly important because living in poverty is tied to a host of negative physical and mental health outcomes (see Simmons et al. 2010; Radcliff 2013; Smith 2015). Moreover, as the impact of poverty is often disproportionately felt by children, this creates a cyclical pattern that increases the likelihood of future generations also living in poverty. By raising the wage floor, minimum wage policies offer the potential to allow individuals to meet their most basic needs and improve their overall well-being.

Second, a higher minimum wage may help to reduce turnover (or “churn”) in the workforce. For example, there is consistent empirical evidence that increasing wages within an economic sector can reduce overall rates of job turnover in that sector (e.g. Howes 2005; Cascio 2006). When workers are paid a higher wage, they tend (all else being equal) to be more content and satisfied with their job (Sousa-Poza and Sousa-Poza 2000), and less likely to go through the disruptive and possibly destabilizing exercise of seeking out and finding new employment. This, in turn, maintains and possibly enhances workers’ sense of well-being.

Third, increasing the minimum wage may promote greater social connectedness and integration. One factor that improves the overall workplace experience is the ability to develop friendships and personal connections with workers and the larger community (Frey and Stutzer 2002). Workers with more stability, in part due to higher wages, are more likely to become invested in their workplace and develop/nurture personal networks. Moreover, this social connectedness travels with the minimum wage worker beyond the workplace and can give citizens more agency (Rothstein 1998). As the minimum wage goes up, workers are decommodified which can help reduce their dependence on the private market which “becomes to the worker a prison in which it is necessary to behave as a commodity in order to survive” (Esping-Anderson 1990, p. 36).^[3] As a result, low wage workers have more freedom to engage in their community, join the proverbial bowling league, etc. Given the voluminous literature that documents the positive consequences of social connection and interpersonal relationships (Myers and Diener 1995; Veenhoven 1996; Lane 2000; Putnam 2000; Helliwell 2003), it is likely that earning a higher minimum wage enhances the opportunities for citizens to engage in civic and social life and, in doing so, enhances their sense of well-being.

Fourth, raising the minimum wage can boost citizens’ feelings of political efficacy and government responsiveness. Increasing the minimum wage is hugely popular across a variety of demographics – including, of course, low income workers. Implementing policies, like increasing the minimum wage, provides the rare occurrence when low income workers can feel that government officials are responsive to their political opinions.^[4] As we previously noted, initiatives to raise the minimum wage on the 2014 ballot passed in conservative Republican states with 69%, 66%, 59% and 55% of the vote in Alaska, Arkansas, Nebraska, and South Dakota, respectively. This policy responsiveness to disadvantaged citizens stands in stark contrast to the pattern generally found in the literature on social class and representation (e.g. Gilens 2005; Bartels 2008; Flavin 2012) whereby the wealthy and business interests usually enjoy a “privileged position” in the policymaking process (Lindblom 1977). In short, increasing the minimum wage is what a majority of citizens want – and this includes disadvantaged groups whose political opinions tend not to be reflected in government policy decisions as compared to affluent citizens.

Turning our attention now to arguments against raising the minimum wage, the first argument is that an increase would fail to have the desired impact on income and inequality (Atkinson 1999; Pontusson 2005). For example, Texas senator and 2016 presidential candidate Ted Cruz stated that “every time you raise the minimum wage, the people who are hurt the most is the most vulnerable” (Little 2015). The Congressional Budget Office (2014) agrees that while raising the minimum wage would lift some out of poverty, some of the benefit would be offset by other employment positions being eliminated (but see Belman and Wolfson 2014). So, while not contesting the tangible benefit of an increase in income for some, others would stand to lose job security, stability, or their positions altogether. Moreover, a higher minimum wage may prevent businesses from creating new positions. Forced to increase salaries based on public policy, some businesses might be forced to close their doors completely. Although higher incomes might lead to better outcomes for some workers, this unavoidably comes at the risk of higher rates of unemployment which hurts the economy generally and the physical and mental health of working class citizens specifically (Catalano 1991; Laitinen, Ek, and Sovio 2002; Charles and DeCicca 2008). Artificially lifting the wage floor may also lead to higher prices for goods and services – in addition to housing costs – that have a negative impact on the well-being of low and high wage earners alike.

A second distinct (but related) argument for opposing an increase in the minimum wage is that it is an example of further government intrusion into the private economic decisions of individuals and firms. For example, previous research suggests that greater government intervention into the market economy can lead to lower levels of well-being among citizens (Bjornskov, Dreher, and Fischer 2007; but see Radcliff 2013). Moreover, intrusion into private markets limits individual freedom and can constrain citizens’ sense of personal autonomy (Belasen and Hafer 2012, 2013). Given these documented ill effects of government intervention into the economy, it is possible that increasing the minimum wage will harm overall well-being.

A third argument for not raising the minimum wage is that it counterproductively stigmatizes and further traps those earning the minimum wage in poverty. This “perversity thesis” suggests that increasing the minimum wage (and other efforts to make the social safety net more generous) ensnarls people in poverty by keeping them in low wage and low skill jobs that are generally designed to be temporary (Murray 1984; Hirschman 1991). By this logic, raising the minimum wage leads low income workers to make “wrong” decisions to stay at their current job instead of pursuing new opportunities – whether that be education or a potentially higher paying job. Likewise, younger workers might be tempted to drop out of school as an immediate higher income sounds more attractive.^[5] Lower graduation rates will have the ultimate impact of a less-educated and skilled workforce.

A fourth argument against raising the minimum wage focuses on the cyclical nature of income needs. The Easterlin (1974) Paradox suggests that the benefits associated with a higher income continue, but only up to a point. This is in part due to the idea that one’s needs evolve as one makes more money. A minimum wage worker might initially be better able to meet his or her needs. This bump, however, will dissipate as the worker develops a new set of needs, wishes, and desires. Above and beyond any adjustments in the cost of living, individuals will slowly grow dissatisfied after earning that new wage for a time. Because of this acclimation to new material circumstances, many scholars argue that relative (not absolute) income is what matters. Regardless of the state they live in, minimum wage workers are earning, by definition, the minimum among all wage earners. Based on what we know about low levels of political knowledge, especially in regards to state public policies (Lyons, Jaeger, and Wolak 2012), it is unlikely that minimum wage workers in one state will compare their financial situations to minimum wage workers in another state. Instead, minimum wage workers are more likely to compare their relative station to those in their community and those in their own city and state, who are earning more than them. Thus, the benefits on workers’ well-being of increasing the minimum wage from, for example, $7.25–$8.25, will quickly dissipate and soon there will be calls to raise the minimum wage yet again.

A Case Study: Minimum Wage Increases and Workers’ Subjective Well-Being

As demonstrated by the discussion above, raising the minimum wage is a politically contentious question that requires careful consideration of potential advantages and disadvantages. It is not our intent here to take a side on which argument holds the most merit. Indeed, we theorize that the decision of whether to increase the minimum wage or not likely goes beyond dollars and cents. With that in mind, we next present the preliminary results from an original empirical analysis that examines what effect, if any, minimum wage increases have on citizens’ self-assessments of their quality of life. We believe this is an appropriate and useful evaluative metric because all of the potential advantages and disadvantages of raising the minimum wage discussed above ultimately presuppose some effect on citizens’ quality of life. Moreover, assessing the relationship between the minimum wage and subjective well-being (SWB) is, we argue, the type of policy-motivated research that can provide useful information for policymakers and the wider public (Diener and Tov 2012).^[6]

In a recent article in The Nation, Benjamin Ryan writes that “It’s Science: Raising the Minimum Wage Would Make American a Happier Place.” Ryan’s article is, in part, motivated by a September 2015 article by Laura Smith in the American Psychologist that urges the American Psychological Association to advocate for a higher federal minimum wage because of the adverse effects of poverty on individual and societal outcomes. Specifically, Smith’s summary of the existing scientific literature points to a “mountain of evidence that supports the damaging impact of poverty upon the psychological, social, and physical well-being of adults, children and communities.” Despite the questions raised in these commentaries, we are aware of no study to date that explicitly tests the relationship between the minimum wage and SWB.

As the scientific study of life satisfaction has grown across the social and medical sciences, a well-developed literature has responded to an array of potential theoretical and methodological concerns about its usage. For example, standard or conventional survey items used to measure SWB have been rigorously tested and found reliable and valid (Myers and Diener 1997). Moreover, scholars have grown increasingly confident that the scientific study of well-being is not particularly marred by social desirability bias or the desire to report one is satisfied when that is not the case (Myers and Diener 1995). Individuals who self-report higher levels of satisfaction on surveys also tend to demonstrate other attitudinal and behavioral characteristics that communicate happiness. For example, they are more likely to laugh, smile, and report higher levels for other (self-reported) measures of satisfaction (Watson and Clark 1991; Myers 1993; Myers and Diener 1997). Self-reported levels of well-being also correlate highly with evaluations that come from external sources, such as family, friends, or professional/clinical assessments (Myers and Diener 1997).

Recent research on SWB typically relies on a single, direct question that asks respondents to report on how satisfied they feel with their lives “in general.” Asking this question in a simple and direct way has been documented to perform as well or better than more complex multi-item approaches (Veenhoven 1993). For example, after examining in detail a large number of concerns over the scientific utility of self-reported satisfaction, Veenhoven (1996, p. 4) concludes that most doubts “can be discarded.” As he puts it, the “literature on this point can be summarized as saying that simple questions on happiness and life satisfaction measure subjective appreciation of life quite validly” (1997, p. 157). In short, the available evidence clearly suggests that we can measure citizens’ self-assessments of their quality of life with reasonable accuracy.

To measure citizens’ SWB, we use data from the Gallup-Healthways Well-Being Index poll that surveys more than 500 Americans each day. The particular survey item used is, keeping with the suggestion of the literature discussed above, the most basic and straightforward life evaluation question. Specifically, it asks respondents: “Please imagine a ladder with steps numbered from 0 at the bottom to 10 at the top. Suppose we say that the top of the ladder represents the best possible life for you, and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time, assuming that the higher the step the better you feel about your life, and the lower the step the worse you feel about it? Which step comes closest to the way you feel?” Individual responses to this question were then aggregated to create state-level averages for comparison.

Because the minimum wage has the largest potential impact on the quality of life of low income citizens, any analysis of the effects of minimum wage increases should naturally focus on this subgroup. The Gallup survey categorizes respondents into three groups based on their self-reported monthly household income: less than $3000 (low income), $3000 to less than $7500 (middle income), and $7500 or greater (high income). We use the average life evaluation measure by state for only respondents in the low income group (i.e. those with a monthly income of less than $3000). Because Gallup only reports aggregated data if an income group has at least 300 responses for a particular state in a given year, we have an average measure of quality of life for low income respondents in 41 of the 50 states.^[7]

Our empirical strategy is to compare changes in the well-being of low income citizens in states that recently increased their minimum wage to those living in states that did not. Specifically, our dependent variable is the change in SWB among low income citizens within states from 2010 to 2013 such that a positive value indicates an increase in SWB over that time period and a negative value indicates a decrease. We select 2010 as a starting year because federal legislation that increased the minimum wage for all states to $7.25 took effect in July of 2009.^[8] In our analysis, we assign this federal minimum wage value of $7.25 to all states that have a minimum wage lower than the that federal level or no minimum wage at all. We believe this is a reasonable assumption because the federal minimum wage (if higher than the state minimum wage) applies to all businesses that engage in interstate commerce or have annual revenues of over $500,000. To measure change in the minimum wage from 2010 and 2013, we calculate the percentage increase (if any) from 2010 to 2013. During this time period, 10 of the 41 states in the sample increased their state minimum wage, ranging from a low of a 1.37% increase in Missouri to a high of a 9.27% increase in Nevada.^[9]

This first difference estimation strategy accounts for all time invariant factors that differ between the states (culture, history, etc.) and allows us to isolate only changes in states over time. To account for other theoretically relevant and time variant factors that might affect citizens’ well-being, we include a measure of change in a state’s unemployment rate and change in a state’s economic growth for 2010–2013.^[10] Using these variables, we estimate the following equation with the 41 states as the units of analysis:

LE2013−2010=α+β1(MW2013−2010)+β2(UR2013−2010)+β3(EG2013−2010)+ε

In the equation, LE is average life evaluation among low income respondents, MW is a measure of the percentage change (if any) in a state’s minimum wage, UR is a state’s unemployment rate, and EG is a state’s level of economic growth.^[11] Change in life satisfaction between 2010 and 2013 is a continuous variable, so we use ordinary least squares regression to estimate the coefficients.

Before proceeding to the analysis, it is important to highlight that we examine changes in quality of life among low income citizens within a state as a whole, regardless of whether respondents personally or directly benefit from an increase in the minimum wage or not (i.e. whether they personally receive a raise as a result of an increase). One advantage of this type of research design is that it minimizes concerns about social desirability bias (such that respondents feel they should report higher levels of SWB because they received a boost in their hourly earnings) because the policy “treatment” is simply whether one lives in a state that increased its minimum wage or not. However, it also means that any effect of the policy intervention will likely be underestimated. Therefore, the research design employed here arguably applies a very conservative test that biases against finding any statistical relationship between an increase in the minimum wage and citizens’ quality of life.

Table 2 reports the results from regression models with change in average SWB among low income citizens within a state between 2010 and 2013 as the dependent variable. In Column 1, the coefficient for the change in state minimum wage variable is positive and statistically different from zero at conventional levels of statistical significance (p<0.05). This indicates that low income citizens in states that increased their minimum wage report a greater boost in their level of SWB compared to citizens living in states where there was no increase. From a substantive standpoint, moving one standard deviation on the change in minimum wage variable predicts over a one-third standard deviation increase for the change in SWB dependent variable. To examine our research question in an alternative way and test the robustness of the finding, Column 2 uses the same model specification but uses a ratio measure (the value for 2013 divided by the value for 2010) for change in SWB among low income citizens as the dependent variable. This additional estimation reveals a similar result: low income citizens’ self-reported quality of life increased in states where the minimum wage increased.

One potential concern with the interpretation of the analysis above is that some alternative factor beyond an increase in the state’s minimum wage (and the change in a state’s unemployment rate and level of economic growth) is impacting quality of life among low income citizens. To subject this possibility to greater empirical scrutiny, we conduct a series of placebo tests on groups that, from a theoretical standpoint, do not stand to benefit (at least in any direct way) from an increase in the minimum wage. Specifically, we estimate regression models using the same specification as above but instead use as the dependent variable change in quality of life in a state between 2010 and 2013 among only citizens in the middle income category ($3000 to less than $7500 per month) and only citizens in the high income category ($7500 or greater per month). If an increase in a state’s minimum wage boosts SWB among middle and high income respondents in the same way it does for those with low incomes (as reported in Table 2), then it is likely that the boost in SWB among citizens with low incomes is attributable to some other factor we have not accounted for. However, if a minimum wage increase has no effect on the SWB of other income groups, that evidence would provide additional confidence that the findings reported in Table 2 are not spurious.

The results from these placebo test estimations are reported in Table 3. For citizens in the middle income category (Columns 1 and 2), there are enough respondents (i.e. more than 300) in the same 41 states as the analysis for citizens with low incomes reported above. For citizens in the high income category (Columns 3 and 4), there are enough respondents in only 32 states. Looking across the four columns in Table 3 reveals that the coefficient for change in state minimum wage is not statistically different from zero in any of the regression models. These results indicate that an increase in a state’s minimum wage did not have an effect on SWB among middle and high income citizens who, compared to citizens with low incomes, are unlikely to directly benefit from the policy. In other words, the finding that a minimum wage increase boosts SWB among citizens with low incomes does not extend to more affluent citizens. Taken together, these placebo tests suggest that the findings reported in Table 2 are not spurious.

Conclusion

The question of whether or not to raise the minimum wage is one of the most hotly debated in contemporary American politics. As we discuss in the first part of this essay, the lack of any recent federal action on the minimum wage has moved political battles to the state level and underscores the importance of federalism. Despite broad public support across partisan affiliations for increasing the minimum wage, political experiences from the last 10 years lead us to predict little future movement in states with unified Republican control of state government and no access to direct democracy through the ballot initiative.

In the second part of this essay, we engaged the strong theoretical arguments both for and against increasing the minimum wage with particular attention to the possible effects on workers’ well-being. Even with the entrenched partisan nature of recent action (or inaction), it is likely that the issue will remain a source of political debate even in deeply Republican states and continue to lead to varying sub-national policies. This rich variation across states provides a useful natural experiment (Casselman 2017) that allows both scholars and policymakers to examine what happens in states that pursue an aggressive increase beyond the federal minimum and in states that merely match the federal minimum wage (or less). What happens to economic growth? Are jobs lost and higher prices passed along to consumers? What happens to the need or level of government services offered in terms of cash assistance, food stamps, or unemployment insurance? As states pursue different courses of action, future research should be able to more effectively ascertain the tangible benefits and costs of a higher minimum wage.

The third part of this essay then attempts one such investigation of the potential benefits and costs by presenting preliminary empirical evidence that subjective well-being (SWB) increases among low income citizens in states that choose to increase their minimum wage. Importantly, we find that this impact is contained to only low income citizens. These results give us confidence that (1) increasing the minimum wage can have a tangible impact on the intended population and (2) that this benefit does not come at the expense of more affluent citizens (that is, middle or high income citizens do not experience any decline in SWB when the minimum wage is increased). This finding has important implications, we argue, for the ongoing debate about the societal effects of increasing the minimum wage.

From a broader public policy standpoint, potentially increasing the minimum wage is important because it arguably has the highest probability of being implemented compared to many other proposals for strengthening the American social safety net. Indeed, it is unlikely that sizable government interventions (such as a more generous welfare state) that have been linked to higher levels of SWB among low income citizens (Alvarez-Diaz, Gonzalez, and Radcliff 2010; Radcliff 2013; Flavin, Pacek, and Radcliff 2014) will be implemented anytime soon in the United States. Likewise, it is unlikely that other mediating institutions that provide a social safety net and improve SWB among working class citizens, most notably organized labor (Keane, Pacek, and Radcliff 2012; Flavin and Shufeldt 2016b), will return to anything resembling their previous prominence. Therefore, increasing the minimum wage represents a widely supported policy to address poverty and inequality and enhance workers’ well-being that has a reasonable chance of future political success. For that reason, we suspect it will remain a focus of political debate among politicians and the wider public for years to come.