Confronting Low Pay: Minimum Wage Policy and Employment in the U.S. and France

Abstract

Nearly one-third of all American workers are paid very low wages, the highest rate among wealthy nations. An incidence of low pay at this level has obvious implications for the current standard of living for a substantial share of American families. But of particular concern are the implications for the future: the low pay rate has risen precipitously for young male workers with each economic downturn since the late 1970s. In stark contrast, over the last three decades France has adopted a minimum wage policy designed to eliminate low pay, and it has worked: the low-wage share has dropped to just 10 percent. But does the French evidence confirm the conventional prediction that a minimum wage high enough to substantially reduce the incidence of low pay will also eliminate large numbers of jobs for young, less-educated workers? We find no support for this view in the aggregate data. Despite the large and growing gap in the value of the US and French minimum wage since the mid-1990s, French unemployment and employment rates show stability or improvement as well as strong convergence to U.S. levels. Unemployment-to-population rates for US and French 15-24 year olds have closely tracked one another since the mid-1990s. At the same time, the US and French shares of the employed with a wage above the low-wage threshold and not working involuntarily part-time show a steady and substantial divergence in France’s favor, and this appears most dramatically for young less educated workers. France has shown that a rising minimum wage can all but eliminate low paid work without worsening employment opportunities for vulnerable workers. Making work pay for the bottom third of the workforce should be a top priority for American social policy.