Minimum Wage: Living near the Edge (of a State)

When researchers and journalists want to study the effects of minimum wage laws on employment, often they look at state boundaries, where they can compare similar areas with similar economies, but different minimum wage laws. Classical economics says that when the minimum wage rises, total employment should fall; these studies look to see if this is occurs in reality.

The classic study along these lines was done by David Card and Alan Krueger. In 1992, New Jersey increased its minimum wage from $4.25 to $5.05 an hour. Across the Delaware River, Pennsylvania kept its base wage at the federal minimum of $4.25. Card and Krueger looked at employment in fast food restaurants in New Jersey and eastern Pennsylvania. They found that rather than there being a drop in employment, there was actually a slight increase in New Jersey after the higher minimum wage took effect. Other researchers, such as David Neumark and William Wascher have disputed these findings, saying employment did in fact fall in New Jersey, and the debate is ongoing.

One easy way to find these differences in minimum wages is through PolicyMap. (You knew that was coming.) We use data from the U.S. Department of Labor to show the minimum wage in each state, updated to January 1st this year. This map makes it obvious why everyone wants to compare New Jersey and Pennsylvania; one of the highest minimum wage states is right next to one of the lowest.

Note that this is only state minimum wage; municipalities with higher minimum wages, such as San Jose, are not shown. This data is free to the public, and is available in the “Incomes & Spending” menu.

This year, New Jersey raises its minimum wage from $8.25 to $8.38, part of an automatic cost-of-living increase passed by voters in 2013. Pennsylvania’s remains at the federal minimum of $7.25. According to the Philadelphia Inquirer, it’s difficult to attribute aggregate changes in employment to minimum wage laws, but New Jersey’s been doing fine, adding 34,250 private-sector jobs in 2014.

National Public Radio’s Planet Money podcast had a unique take on this question. They visited a mall in California that sits on the border of Santa Clara and San Jose. San Jose’s minimum wage is $10, as opposed to Santa Clara’s, which is $8. Different stores pay their employees according to where in the mall they are. Here, the area with the lower minimum wage has a harder time finding employees, because everyone wants to work in the higher wage area. A shoe store manager in the low wage area says, “We get the bottom of the barrel here. Not really focused. … One guy came in high the other day.” It’s worth a listen.