Minimum Wage Increases Helped Workers Pay the Rent

Number of the Day: The most relevant or interesting figure in personal finance

10.6%

That’s how much missed rental payments decreased in states that raised their minimum wage compared with those that didn’t, according to a recent study.

Put another way, every 1% increase in a state’s minimum wage caused a 1.1% drop in missed household rental payments, concentrated among the lowest-rent properties whose tenants are most likely to benefit from minimum wage increases, the research found. The study, published in December in the Journal of Urban Economics, looked at what happened between 2000 and 2009 in 25 states that raised their minimum wages by an average of $1.73 an hour. It also examined detailed data on rent payments from an Experian database.

The paper adds to a growing body of research about the minimum wage, which has become a hot topic in the pandemic era. An effort by President Joe Biden and other Democrats to more than double the federal minimum wage to $15 ran aground in the Senate last year, but 21 states raised it on their own at the outset of 2022.

n addition to the improvement on payments, however, there was a surprising downside for renters, the study showed: Landlords hiked rents over the three months following the minimum wage increases by an average of 7.6%—a $54-a-month rent boost on average that would eat up a little more than half the minimum wage hikes over the same period.

“I assumed that there would be some upward adjustment, but the size was larger than I expected,” Brent Ambrose, a professor of real estate at Pennsylvania State University and one of the study’s co-authors, said about the rent hikes in an email.

Those rent increases meant that while some minimum-wage workers probably came out ahead after all was said and done, others did not, Ambrose said.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

Article Sources

  1. SSRN. “Minimum Wage Increases and Eviction Risk.” Download the paper. Accessed Jan. 27, 2022.