The impact of increases in the minimum wage has long caused controversy in political and management circles. Supporters of regular increases argue that those raises are necessary to keep working people from falling below the poverty line. Opponents contend that the increases actually prevent less qualified workers from entering the labor pool because employers can no longer afford to hire them.
Unfortunately, little data existed to support either side, until now. Recently, a Kellogg professor helped to build a model that gives an unexpected answer to the question in one particular type of situation: the service sector that employs minimum-wage workers who depend on incentive payments as part of their earnings, such as servers who receive tips and retail employees and sales staff who work on commission. In these cases, the model strongly suggests that everyone—employers, customers, employees who lose their jobs, and even those who stay—ends up in a worse situation when the minimum wage increases.
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