In the months after a state raises its minimum wage, fewer residents miss their rent payments, staving off the risk of eviction, finds a comprehensive analysis of U.S. residential leases forthcoming in the Journal of Urban Economics.
The paper, “Minimum Wage Increases and Eviction Risk,” also finds that when minimum wages go up, the default rate declines more for tenants with low monthly rent payments, compared with tenants who pay relatively high rents. The authors define a default as a tenant missing rent for a month, a potential precursor to eviction.
Rent is “one of the most important expenses that low-income households will face,” says Moussa Diop, one of the authors and an assistant professor at the University of Southern California, who studies rental markets.
By the end of the last decade, 46% of renting households used one-third of their income for housing, with some 24% of households putting more than half of their incomes toward rent, according to an analysis of U.S. Census Bureau data from the Joint Center for Housing Studies of Harvard University.
Diop and co-authors Sumit Agarwal and Brent Ambrose examine a sample of 984,376 leases signed from 2000 to 2009 in 39 states, 25 of which enacted minimum wage increases during that period. The leases covered 2,248 properties across 173 metropolitan areas. The data comes from RentBureau, which the authors retrieved via Wharton Research Data Services at the University of Pennsylvania. Data collection methods changed in the 2010s and the Wharton research service does not provide more recent RentBureau data, the authors explain in the paper.
They find renters in states that raised the minimum wage experienced 10.6% fewer defaults than similar renters in states that did not up their wage floor.
On average, states increased their minimum wage by $0.57 for each hike, about a 10% bump and amounting to nearly $100 extra per month for an average full-time minimum wage worker. Over the nine years studied, the average minimum wage earner in states that raised their wage saw base earnings increase by $1.73 per hour, about 30%.
Landlords, in turn, appear to have recouped some, but not all, of the minimum wage hikes in the form of higher rents. One month after a minimum wage increase, rents on average increased by $53.90, compared with the average rent over the six months before a minimum wage change.
Despite the results suggesting some landlords capitalize when minimum wages go up, the findings on rent defaults “provide evidence that efforts to stabilize lower-income households via increases in the minimum wage do in fact reduce the riskiness of low-income households,” the authors write, referring to the risk of eviction.
It’s worth noting the authors studied the relationship between rent defaults and whether or not a state raised its minimum wage, not the amount of a minimum wage increase. They also did not examine local rent control or minimum wage laws, as they explain in the paper that their focus is on “cross-state, rather than within-state, variations in lease defaults in response to state minimum wage changes.”
However, they ran a subsequent analysis excluding California, Maryland and New York — states with cities that have relatively strong renter protections. The core findings were not affected.
Where to find data on eviction filings
Evictions are legal proceedings. They begin with an eviction notice. Once an eviction notice is served, tenants usually have several days, depending on local laws, to respond to their landlord’s breach of contract allegation. Nonpayment of rent is by far the most common reason landlords file eviction notices.
“During the past decade, the incomes of poor Americans have fallen or flat-lined, housing costs have soared and public policy has failed to bridge the gap,” writes Princeton University sociologist Matthew Desmond in a 2018 essay published in the International Journal of Urban and Regional Research. “As a result, the majority of poor renting families in America now devote at least half of their income to covering housing costs, and eviction has become a common yet consequential event in their lives.”
Eviction data can be hard to come by, but it’s not impossible to find. Princeton University’s Eviction Lab, which Desmond founded, compiles up-to-date eviction filing information for six states and 31 cities. Since eviction filings are legal proceedings, they are generally subject to open records requests, though the process for obtaining records vary by state.
It is important to remember that not all evictions go through a formalized process. A tenant facing eviction warnings from a landlord, even if the landlord never begins the legal process, might choose to leave their rental rather than continue to live under an eviction threat. These are usually called “extra-legal” or “informal” evictions and they can go beyond threats — sometimes landlords change locks or remove tenants’ items from their units, according to preliminary findings published in March 2021 by researchers at the University of Washington. Informal evictions are not captured in data because, by definition, they occur outside of a trackable system, such as court proceedings.
Some states offer free online data on formal evictions. The New York State Unified Court System, for example, offers a high-level dashboard with updated data on eviction filings. Massachusetts also has an interactive dashboard. The Legal Services Corporation, a nonprofit Congress established in 1974, provides an eviction law database with regulations by state and for 30 local jurisdictions.
The federal government doesn’t tally evictions. A proposed Senate bill that would establish a national evictions database has stalled in the House banking committee since December 2019. In a November 2021 report to Congress, the U.S. Department of Housing and Urban Development describes some of the challenges associated with developing a national evictions database:
“Collecting, assembling, and correctly interpreting court records across multiple court jurisdictions is enormously complex and time consuming. Collecting data on extra-legal evictions on a national scale is arguably even harder because there is no formal record.”
Minimum wage research is evolving
Given the overall lack of data on evictions, the data the authors use in the forthcoming article is unusually comprehensive in that it provides an almost decade-long glimpse of lease agreements across a large swath of U.S. metropolitan areas, even though data is from the early 2000s.
Numerous studies investigate how minimum wages affect employment, but the forthcoming paper is among the first to explore the relationship between minimum wages and housing.
One of the most influential minimum wage studies comes from Princeton University economists David Card and the late Alan Krueger, published in 1994 in the American Economic Review. It compared employment effects in New Jersey and Pennsylvania after New Jersey raised its minimum wage in 1992 while Pennsylvania’s held steady. Low-wage fast food jobs grew 13% more in New Jersey than in Pennsylvania, they found. The paper upended what was then a common assumption that raising the minimum wage would lead to less employment.
More recently, a May 2019 analysis in the Quarterly Journal of Economics examined 138 state minimum wage increases from 1979 to 2016 and found “the overall number of low-wage jobs remained essentially unchanged over the five years following the increase.”
Meanwhile, a May 2018 National Bureau of Economic Research working paper finds minimum wage hikes in Seattle in the mid-2010s — culminating with a $13 an hour minimum in 2016 — coincided with reduced hours of 2.7% for workers earning under $19 an hour. The authors note it would be incorrect to “assume our specific findings generalize to minimum wage policies set by other localities or at the federal or state level.” The paper has since been peer-reviewed and is forthcoming in the American Economic Journal.
Social science research is similar to research in the hard sciences — for instance, research on the rapidly evolving COVID-19 landscape — in that no single study is likely to be definitive, but rather adds to the knowledge base.
“There are studies that have documented negative and positive effects [of minimum wage increases] and we are just providing some effect that is positive, on average,” Diop says. “We are not saying this closes the debate on minimum wages.”