Evidence of the Minimum Wage's Unintended Labor Scheduling Consequences

There are fears that raising the minimum wage will have unintended repercussions, such as job losses.

For decades, the impact of the minimum wage has been a hot topic of discussion. Low-paid workers in the United States, particularly in the food service and retail industries, have been lobbying for a $15 minimum wage for many years. Many states (such as California and New York) and municipalities (such as San Francisco, Seattle, and New York City) have responded by hiking minimum salaries in order to improve worker welfare.

There are fears that raising the minimum wage will have unintended repercussions, such as job losses. However, the evidence that appears to back up these worries is mixed: some studies demonstrate that the minimum wage has a minor but negative employment effect, while others show no such effect. This discussion has raged on until now. Part of what makes the employment effect so elusive is that, in addition to employment, firms can respond strategically to the minimum wage by changing job features other than income, such as worker scheduling. This is frequently overlooked, yet it can have substantial consequences for worker welfare. Despite its theoretical importance, no actual data on the minimum wage's scheduling consequences has yet been established. This is mainly because thorough scheduling data (which captures the exact daily shifts worked by all employees within the same organization) is not publicly available and difficult to obtain.

We use a highly granular data set of worker schedules from a medium-sized chain of fashion retail stores in the United States to explore how enterprises respond to a minimum wage in their labor scheduling practice in our research. We look at worker scheduling and minimum pay data for 5,832 workers at 47 retailers in California and 17 stores in Texas from 2015 to 2018. The same brand is used in all of the stores. All employees at the stores are included in our data. They are all paid by the hour, with the majority receiving the minimum wage. The main benefit of our data set is that it enables for precise labor hour measures for a store as a whole as well as for every individual workers within a store, including shift timings for each worker.

The control group consists of retailers in Texas, where the minimum wage of $7.25 did not change during the study period, while the treatment group consists of stores in California, where the minimum wage was stable in 2015 and has climbed every year thereafter.

Our findings suggest that the minimum wage has little influence on total labor hours worked in stores, which is consistent with previous research on the employment effect of minimum wages, particularly in nontradable industries (e.g., retail and service). However, we show that the way retailers distribute these hours among their employees varies. When the minimum wage is raised by $1, the number of workers scheduled to work each week grows by 27.7%, while the average weekly hours per worker decreases by 19.4%. These modifications, for example, amount to four extra workers per week and five fewer hours per worker per week in a typical California retailer. When the minimum wage in California is raised from $11 to $12, this means that an average minimum wage worker's total wage compensation is cut by 13.6 percent.

This decline in the average number of hours worked affects workers' eligibility for benefits as well as their total pay. We show that the percentage of workers working more than 20 hours per week (who may be eligible for retirement benefits under the Employee Retirement Income Security Act of 1974) and those working more than 30 hours per week (who may be eligible for health care insurance under the Affordable Care Act) decreases by 21.5 percent and 15.3 percent, respectively. These findings imply that as the minimum wage rises, businesses may modify their scheduling methods to minimize the number of workers eligible for benefits. This is in line with earlier survey data findings that demonstrate that raising the minimum wage affects the chance of workers receiving health insurance, particularly in low-wage industries.

We show that, in addition to the direct loss in total pay compensation and eligibility for benefits, raising the minimum wage results in less consistent worker schedules in terms of both the amount of hours they work from week to week and the scheduling of their shifts. The absolute variance in the number of weekly hours worked by each worker increases by up to 32.9 percent for every $1 increase in the minimum wage. Furthermore, we demonstrate that the absolute variance in the number of daily hours increases by up to 9.7%. When we look at the effects across different workers, we find that scheduling consistency deteriorates more quickly for those with a shorter tenure.

Limited and unpredictable hours have long been common, particularly in the service and retail industries, as well as among low-wage workers. According to recent studies, 6.4 million people (4.4 percent of the total national labor force) worked part time in 2015 while preferring to work full time, and 17 percent of the US workforce has unpredictable work schedules. According to previous study, constrained and unpredictable worker schedules make it much more difficult for workers to balance professional and family lives, to work a second job, or to achieve financial stability. These concerns could be worsened by subsequent minimum wage rises, emphasizing the need to better understand the minimum wage's scheduling implications.

We also show that raising the minimum wage can impair worker wellbeing due to changes in firm scheduling practices, even if overall employment does not decrease. We estimate the net loss of welfare due to reduced hours, lower eligibility for benefits, and less consistent schedules (that resulted from a $1 increase in the minimum wage) to be at least $1,599 annually, or 11.6 percent of the worker's total wage compensation, for an average worker in a California store in our data. This assumes that employees were able to use their decreased hours to work a second job, which may not be the case for many employees.

Our research is the first to look at the effects of the minimum wage on labor scheduling. Because of the richness of our data, we can properly characterize each retail store's scheduling practice and clearly illustrate how scheduling practices and worker schedules vary when the minimum wage rises. The economic research implies that if a minimum wage rise does not affect employment, the welfare effect is positive. However, our findings show that even when overall employment at the stores remains same, deliberate changes in labor scheduling practices (as a result of the minimum wage hike) can significantly lower worker welfare. These findings emphasize the significance of this little-considered operational method through which raising the minimum wage might affect worker welfare. As a result, in order to better develop minimum wage rules that really help workers, legislators must first have a greater understanding of the operational choices that businesses confront when making scheduling decisions (in the presence of demand and capacity uncertainties). Our research offers light on this important topic.

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