Minimum Wage Hikes Don’t Just Raise Pay—They Can Make Jobs Better, New Research Says

Raising the minimum wage can increase the number of “good jobs” in the labor market, according to a new analysis from the National Bureau of Economic Research (NBER). “Good jobs” are defined as those “that provide a middle-class living standard, a sufficiently high wage, good benefits, reasonable levels of personal autonomy, adequate economic security, and career ladders.”

NBER researchers examined data from Uruguay, which increased its minimum wage by 80% in 2005 and began implementing inflation-based pay increases afterward. What happened was a tripling in the minimum wage between 2004 and 2013—and a significant decrease in wage inequality. 

Essentially, the minimum wage hikes forced employers that paid workers less to catch up with better-paying peers, the report found. This drove wage growth among lower-income workers and narrowed the gap between the minimum wage and the median wage. In fact, the 2005 increases alone reversed more than seven years of heightened inequality in just one year, the report said. 

“The results suggest that minimum wages can increase the supply of ‘good jobs’ by ‘making bad jobs better,’ in addition to reallocating workers toward ‘good jobs,’” the researchers noted.

Significantly, raising wages for lower-income workers did not lead to job losses, the NBER researchers found, challenging economic theories that suggest higher minimum wages inevitably reduce employment by increasing the cost of labor, a warning that has dominated policy debates for decades.

What About the U.S.?

The federal minimum wage in America is $7.25 per hour, unchanged since 2009. Individual states have instituted their own wage floors, the highest of which is Washington’s $16.66 hourly rate. Washington D.C. has a minimum wage of $17.95. Increasing the federal minimum wage by 80%, as Uruguay did in 2005, would result in a minimum wage of $13.05. 

A 2023 study by the Congressional Budget Office (CBO) using standard macroeconomic models argued that raising the minimum wage to $17 per hour by 2029 and indexing it to inflation thereafter would increase the wages of 11.3 million workers and potentially another 12.4 million on top of that. 

However, the CBO estimated that about 230,000 jobs would be lost by 2027 in the $17-per-hour scenario, with 1 million jobs lost by 2033. 

Even a $12 minimum wage could have a significant impact. A 2023 NBER paper estimated that setting a $12 wage floor would not only raise workers’ pay but could cut gender and racial wage gaps 25% to 50% among those at the 15th percentile of income and below.

The Bottom Line

Raising the minimum wage can have a significant impact on the number of good jobs in the economy, according to an analysis by the NBER. Workers’ incomes rose in Uruguay as firms that historically paid their employees less increased wages.

In the U.S., the minimum wage has remained at $7.25 an hour since 2009. Increasing it to $17 by 2029 would raise the wages of millions of Americans, according to the CBO, although some jobs could be lost.