A Higher Minimum Wage Can Lead Employers to Lower Compensation
Companies can cut workers’ hours to reduce their eligibility for benefits, according to a study.
A study published this month in the Harvard Business Review finds that “as minimum wage increases, firms may strategically adjust their scheduling practices to reduce the number of workers eligible for benefits.” That’s a way for them to suppress compensation costs.
The study is based on an unidentified national fashion retailer and compares its stores in California, where the state minimum wage steadily rose from 2015 to 2018, with those in Texas, where the state minimum equaled the federal minimum of $7.25 an hour over the period. It finds that raising the minimum wage didn’t reduce the total number of hours worked in the California stores. However, for every $1 increase in the wage floor, the total number of workers scheduled to work each week increased by about 28%, while the average number of hours each worker worked per week decrease about 21%. As a result the average wage of a minimum wage worker in a California store fell about 14%.