Minimum Wage Hikes Fuel Homelessness in US: Study

A homeless man sleeps on the streets of Los Angeles, Calif., in December 2018. John Fredricks/The Epoch Times

Higher minimum wages lead to more people becoming homeless, according to a recent study that identified a clear link between the hike in minimum wages and the phenomenon of homelessness—a 14 percent increase from 2014 to 2019.

Higher minimum wages disincentivize businesses from hiring employees, and actually encourages letting go of workers to reduce costs. While activists simply look at the workforce being paid a higher amount, they choose to ignore the other side of the situation where existing staff work harder to retain their positions, and the total number of opportunities become fewer. When openings go down, people cannot afford basic necessities, including housing.

The June 16 study, published at OSF preprints, looked at the relationship between local minimum wages and homelessness across 100 American municipalities between 2006 and 2019. One of the findings concluded that minimum wage hikes by $2.50 an hour in a specific region resulted in a 14 percent jump in homeless numbers.

“To the extent minimum wages cause disemployment of low-skill workers, the lost job can exacerbate existing economic insecurity and lessen ability to pay for housing. Even if employers do not cut total employment, however, minimum wages might induce churn in the labor market,” the report said.

“Relatively high-skill workers might enter the labor force at the higher minimum and displace those with lower skills. Current residents previously out of the labor force might enter to capture the higher minimum or workers from other geographies might migrate for the higher wage.”

Another report that looked into the homeless situation in California found that a loss of income was a major reason for many people losing their homes.

“Twenty-one percent of leaseholders cited a loss of income as the main reason that they lost their last housing,” said the June 20 report by the University of California, San Francisco (UCSF). In the six months prior to becoming homeless, the median monthly household income of the study’s respondents was found to be just $960.

Raising Minimum Wage

The study implemented three different methods of analysis to study minimum wage hikes and the resulting homelessness. In the first method, municipalities that raised minimum wages by up to $2.50 an hour between 2013 and 2018 were found to have experienced a 14 percent jump in homeless numbers between 2014 and 2019 relative to municipalities where minimum wages either remained unchanged or were pegged to inflation.

Municipalities where minimum wages rose by more than $2.50 per hour saw a 23 percent surge in homeless counts between 2014 and 2019.

In the second analysis, a minimum wage increase of $0.75 per hour or more was observed to have raised homelessness by around 25 percent. The third analysis looked at the effect of continuous changes in minimum wages. In this situation, a 10 percent hike in minimum wages was associated with a 3–4 percent rise in homelessness.

Negative effects of minimum wages are not limited to just housing but also spread into the entire economy. While advocates for minimum wage hikes argue that doing so would help the poor, those who are against it warn about potential large-scale unemployment.

For instance, raising the minimum wage could lead to the disemployment of individuals who would have been hired at wage rates between the old minimum wage and the higher new minimum wage.

People gather together to ask the McDonald’s corporation to raise workers’ wages to a $15 minimum wage as well as demanding the right to a union in Fort Lauderdale, Fla., on May 23, 2019 Joe Raedle/Getty Images

At present, the federal minimum wage is $7.25 per hour for workers covered under the Fair Labor Standards Act. The minimum wage for workers who receive tips is $2.13 per hour, with a stipulation that the tips should push up the wage to at least $7.25 an hour. There are attempts, including from the White House, to raise the minimum wage to $15 per hour.

A 2020 study conducted by economists William Even of Miami University and David Macpherson of Trinity University found that if the minimum wage were to be raised to $15 an hour, an estimated two million jobs would be lost.

In a September 2022 commentary at The Epoch Times, Antonio Graceffo, Ph.D., pointed out that workers who receive tips would be severely affected by higher minimum wages.

“Raising the tipped minimum wage from $2.13 an hour to the current federal minimum wage of $7.25 would nearly triple the cost of employment. To remain in business, restaurants would have to either pass this cost on to customers in the form of higher prices or reduce their costs by firing workers,” he said.

“Either way, raising the wage would reduce jobs because the higher prices would decrease the number of meals sold in restaurants.”

Correlation Between Minimum Wages and Homelessness in US States

States like California, New York, Washington, Massachusetts, Oregon, Vermont, and Hawaii have high levels of homelessness as well as high wage rates.

According to data (pdf) from the U.S. Department of Housing and Urban Development, California had the most homeless people in America in 2022, with 171,521 homeless individuals in the state. New York’s homeless numbers were at 74,178, Washington at 25,211, Oregon at 17,959, Massachusetts at 15,507, Hawaii at 5,967, and Vermont at 2,780.

California’s minimum wage rate for 2022 was $14 per hour, which has risen to $15.50 in 2023, according to data from the U.S. Department of Labor and the human resources firm Paycor.

New York’s 2022 minimum wage was $13.20, which rose to $14.20 this year. Washington’s minimum wage rate moved up from $14.49 to $15.74. In Oregon, minimum wage was $13.50 in 2022, which went up to $14.20 on July 1.

In Massachusetts, minimum wage increased from $14.25 to $15. Hawaii’s minimum wage has remained unchanged at $12. Vermont’s minimum wage this year is $13.18, up from $12.55 last year.