Underpayment Following Minimum Wage Hikes: Who Bears the Brunt?
Underpayment, as a consequence of these wage increases, varied significantly among demographic groups.
The paper (Does Wage Theft Vary by Demographic Group? Evidence from Minimum Wage Increases by Jeffrey Clemens & Michael R. Strain) highlighted the increasing underpayment rates following states' minimum wage hikes. They went deeper to identify variances across different racial and ethnic groups:
Young African-American workers (16 to 21) bore a disproportionate share of the underpayment burden.
For the broader age group, Hispanic workers (16 to 65) faced a more significant incidence of underpayment than non-Hispanic workers.
Methodology
Drawing from the Current Population Survey data, the study outlines the underpayment experienced across different wage regimes. Based on the data:
States without a change in the minimum wage were termed as "no changers".
States with new minimum wage legislation were categorized as "statutory".
States that increased their minimum wage due to inflation were "indexers".
Analyzing the Aftereffects: Regression analyses were conducted to quantify the underpayment phenomenon. The findings, encapsulated in multiple tables, exhibited:
Minimum wage hikes led to a rise in hourly wages. However, this was coupled with increased underpayment, especially among younger demographics.
While the general worker population (ages 16 to 21) realized wage gains ranging from 28.3 to 44.9 cents for every dollar increase in minimum wage, there was an accompanying rise in underpayment.
Industry-Level Insight : By integrating industry-specific data, the study aimed to discern whether variations in underpayment could be tied to specific industries where different demographic groups predominantly worked. Contrary to expectations, these industry-focused analyses echoed the primary findings, reinforcing that demographic disparities in underpayment persisted irrespective of the industry.
Broader Implications
The analysis suggests that while minimum wage increases aim to bridge wage disparities, the resulting underpayment can diminish their impact on wage gaps, especially between racial and ethnic groups. That being said, raising the minimum wage does increase wages, but this challenges the effectiveness of minimum wage hikes in genuinely uplifting all worker groups equitably.
The study also raises an essential question for policymakers: How would heightened enforcement of minimum wage norms impact those suffering from underpayment? While better enforcement might seem like an intuitive solution, firms might adapt in ways that negatively affect the wage hikes intended to help, underscoring a complex trade-off warranting future exploration.