In a post on proposals to raise the minimum wage, Kevin Drum comments:
"it's worth noting that virtually all the evidence on the anti-minimum wage side is either anecdotal or theoretical. The evidence on the pro-minimum wage side is concrete and statistical."
Yet the very story he cites as the basis for this proposition reports otherwise.
In a new report, economists David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve Board say a review of more than 90 studies in more than 15 countries since the early 1990s shows nearly two-thirds of the studies find a "consistent" though not always statistically significant negative impact on employment. Fewer than 10 found a consistently positive impact. While there's "no consensus," they say, "the weight of empirical evidence" supports the traditional view.
UPDATE: I am not sure, but this appears to be the Neumark-Wascher study referred to in the WSJ story. From the conclusion:
In general, our results provide evidence that minimum wages tend to reduce employment rates among the youth population. A clear negative correlation between the level of the minimum wage and youth employment-to-population ratios appears both in the raw data, and in time-series cross-section regressions relating employment rates to minimum wages, with controls for overall economic conditions and cross-country variation in labor market policies and institutions. The disemployment effects also appear in models that control for country-specific factors (including country-specific time trends), indicating that the results are not solely driven by cross-country differences in minimum wage levels and youth employment rates.
Related Posts (on one page):
- When "The Weight of Empirical Evidence" Is Only "Anecdotal or Theoretical":
- Worker Privacy and Ohio's Issue 2:
2/3rds of these studies show a "consistent though not always statistically significant negative impact." How many of these 2/3rds pass some test of significance? That they didn't say doesn't bode well. Moreover, there's no mention of how substantial the effects are. "Significance" alone doesn't tell you much, if you don't describe the magnitude of the effects.
I'm not sure how they derive "the weight of the evidence" from such results, but I bet that Professor Bernstein's version of Daubert wouldn't let it slide if we were talking about a relationship between some alleged toxic substance and a series of civil torts. As someone skeptical of the mantra that "raising the minimum wage eliminates jobs," I don't think one gets very far with this argument.
You mean like, for example, secondhand smoke? Since that's exactly what studies of secondhand smoke consistently show-- the vast majority of studies show a nonsignificant effect, but some level of negative effect.
Of course, studying the minimum wage is always difficult. It wouldn't entirely surprise me if a higher minimum wage didn't cost jobs-- mostly by causing suburban kids from well-off families to look for part-time jobs, and other people with fairly decent skills and attitudes to put off additional education in favor of working now. Both groups of people could have enough job skills and aptitude to justify the higher wages. Of course, it would hurt the worst off among us, who wouldn't have the skills to justify the higher wages, and who would be outcompeted by the new entrants.
I can't see the benefit of a policy that takes jobs from poor people in the inner city and gives them to suburban teenagers, even if it doesn't cost net jobs.
It means that the results are unlikely to be the results of chance.
However, if you run the experiment enough times, you're going to get results that are "wrong". And, if you select the experiments that you report "correctly", you can even generate a consensus or bias a meta-study.
We have the same issue with the Laffer Curve. The only question is where we are on the curve, not whether the theory is sound.
This level most likely varies from one geographic region to another, thus making minimum wage issues best dealt with at a local level.
Here are two cases. In one assume the average wage paid is $10 per hour and the minimum is $2 per hour. But you find that almost no one is paid $2 per hour, in fact 99% of all workers get over $3 per hour. So they raise the minimum from $2 to $3. A few workers earning $2 per hour lose their jobs. Not enough to make a statistical difference in general though I suspect it would be significant to them. A mild increase when wages are generally well above the new minimum will have almost no negative impact. But then it will have no positive impact either -- in the sense of raising the wages of many people.
On the other hand assume the same scenario but you raise the minimum to $8.00. In that case you would see severe impact. The only way to mitigate the negative impact of minimum wage is to raise it such a way that very, very few workers are actually effected either way.
Now what would a minimum wage that “works” do. It would raise the income of some workers in a meaningful way. But at the same time it would have to price other workers out of the market.
What is statistically insignificant is only insignificant because it had no impact on most people. So the general result is insignificant. On the few priced out of the market the result is very significant indeed.
The countervailing argument is that minimum wage hikes "put more money in the pockets of workers," and thus stimulate demand, which eventually results in employers hiring. Sorry, but that has always seemed too clever by half, and completely unconvincing. For example, what if workers saved the extra income? Goodbye demand!
Actually, I don't think that most advocates of higher minimum wages care about the employment effects. To them it is more about "fairness" than anything else. They want to help the "downtrodded," and wage hikes seem to be a convenient method. Also, it is much easier to self-righteously demagogue wages than to talk about abstract, downstream effects.
And if the minimum wage is below the market-clearing rate why raise it? The only reason to do so is political - so someone can act like they're helping the poor when they're hurting them. Because even if the minimum wage is below the market clearing rate there is still the possibility of jobs being created at that level and those are lost. That's what's so frustrating about this issue - the people who actually trying to help the poor sound heartless.
You've never seen any evidence that anyone actually holds this position? Well, now you know of one person.
In fact, the government can just regulate us to any unemployment rate they desire. 4.3% for as far as the eye can see! Then hike the wages, which hikes the taxes, and voila! A balanced budget for as far as the eye can see!
Hey, this regulating yourself into prosperity thing might just get addictive.
Kevin HAS written about the minimum wage in more depth than his commentary on one WSJ article: in June 2006, for example. Here's what he said then: At this point, the bulk of the evidence suggests that modest minimum wage increases (a) provide a measurable benefit for poor workers, (b) have little or no impact on employment levels, and (c) are paid for by the customers of low-wage industries, which means the cost is broadly dispersed among all of us.