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posted on 25 July 2017

Whom Would St. Louis' Minimum Wage Hike Have Impacted?

from the St Louis Fed

Earlier this year, lawmakers in the city of St. Louis approved a minimum wage of $10 per hour. However, a new Missouri state law preempting local minimum wages will roll the minimum wage in St. Louis back to the state level of $7.70 per hour. A recent Economic Synopses essay explored whom the wage increase would have really affected.

Regional Economist Charles Gascon and Senior Research Associate Daniel Eubanks explored a couple of key factors that any city policymaker needs to consider when evaluating a minimum wage:

  • The distinction between residents and workers
  • The distinction between low wages and low incomes

The Difference between Residents and Workers

Many workers in the city of St. Louis commute into the city. As shown in table below, instead of raising the wages for close to 32,500 St. Louis City residents who earn less than $10 per hour, the increase would have affected only about 19,900 residents. The increase would also have benefitted more nonresidents (about 23,000) than residents.

St. Louis Residents and Workers
All St. Louis City ResidentsResident WorkersAll St. Louis City Workers
Total207,13768,402207,895
... Earning Less than $10/hr32,50719,85842,862
NOTES: The sample is restricted to persons over 16 years old. The American Community Survey does not include an hourly wage variable. Hourly wages were computed using annual earnings, weeks worked per year and usual hours worked per week. Full-time workers are defined as those individuals working 35 hours or more per week and at least 50 weeks per year.
SOURCE: Census Bureau's American Community Survey 2011-2015 five-year sample.
Federal Reserve Bank of St. Louis

This is due to the fact that only one-third of the workers in St. Louis City are city residents, and less than half of the city workers earning less than $10 per hour are residents.

The Difference between Low-Wage Workers and Low-Income Households

This is where another crucial distinction needs to be made - the difference between low-wage workers and low-income households, the authors said.

“More than half of those living in poverty have no one in their household who is employed. Moreover, many minimum wage workers are often young workers taking their first job," Gascon and Eubanks wrote. “So, low wages may not be associated with low household income."

The table below shows that only 9,500 resident workers who earn less than $10 per hour live in households that earn below the median annual income of about $35,000. That’s about 48 percent of the aforementioned 19,900 resident workers who earn less than $10 per hour.

St. Louis Residents and Workers
All St. Louis City ResidentsResident WorkersAll St. Louis City Workers
Household Income Less than $35,00074,61617,85634,145
... Earning Less than $10/hr19,4429,53617,871
NOTES: The sample is restricted to persons over 16 years old. The American Community Survey does not include an hourly wage variable. Hourly wages were computed using annual earnings, weeks worked per year and usual hours worked per week. Full-time workers are defined as those individuals working 35 hours or more per week and at least 50 weeks per year.
SOURCE: Census Bureau's American Community Survey 2011-2015 five-year sample.
Federal Reserve Bank of St. Louis

A Better Alternative?

Gascon and Eubanks concluded by noting that raising the city minimum wage in St. Louis was intended to strengthen the safety net for those roughly 74,600 residents in the bottom half of the income distribution. In practice, fewer than 10,000 residents in this category - or 13 percent of those in this category - would have benefitted from this policy.

“Understanding the distinction between residents and workers and low wages and low incomes is an important aspect for policymakers of any city to consider when evaluating a local minimum wage," the authors wrote.

To this end, other policies may be better suited for helping low-income residents, Gascon and Eubanks said, such as earned income tax credits and policies to improve housing affordability.1

Notes and References

1 For further discussion, see Neumark, David. “Reducing Poverty via Minimum Wages, Alternatives," Federal Reserve Bank of San Francisco Economic Letter 2015-38, Dec. 28, 2015.

Additional Resources

Source

https://www.stlouisfed.org/on-the-economy/2017/july/whom-st-louis-minimum-wage-hike-impacted

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

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