On the minimum wage, let’s be shy about what we know, but not too shy.
Nuance should be welcomed in debates about empirical findings in economics. But when it comes to increases in the minimum wage, we must be careful to avoid throwing our hands up in despair and concluding that, because there’s an ongoing argument in the journals, we simply cannot know the outcome of an increase in the wage floor.
I was on a radio show in Cleveland this AM with two other economists, a far-right-leaning guy who proposed abolishing the minimum wage, a guy in the middle, and myself on the left.
Forget the “abolish” guy. Not gonna happen and not worth talking about.
But my view differed from the guy with the middle perspective in a way that may be instructive. His view was that, since the issue of unintended consequences from minimum wage increases – specifically employment or hours’ losses among affected workers – is “unresolved” in the literature, we can’t really know what the impact of a minimum wage increase will be.
But just how “unresolved” is the empirical literature? There are, as Harry Holzer pointed out in a note on this blog recently, credible studies that find negative job impacts. There is also solid research that finds “no evidence of job losses for high impact sectors such as restaurants and retail.”
However, what we need for policy analysis is not simply the sign of that impact, which is admittedly ambiguous; we also need to look at the magnitudes and, crucially, make sure we’re asking the right questions. Regarding studies that find job losses, for example, policy makers should consider the relative numbers of workers hurt and helped by the increase, how much they’re hurt or helped, and how minimum wage increases interact with other policies intended to lift the pay of low-wage workers.
It is here in which the empirical research has been largely consistent, as summarized by economists Dale Belman and Paul Wolfson in a recent prize-winning summary of the reams of analysis of minimum wage increases:
[Moderate] increases in the minimum wage raise the hourly wage and earnings of workers in the lower part of the wage distribution and have very modest or no effects on employment, hours, and other labor market outcomes. The minimum wage can then, as originally intended, be used to improve the conditions of those working in the least remunerative sectors of the labor market. While not a full solution to the issues of low-wage work, it is a useful instrument of policy that has low social costs and clear benefits.
Here’s how Alan Krueger, an economist whose path-breaking work on minimum wages has deeply influenced economists and policy makers, put it in a recent piece:
When I started studying the minimum wage 25 years ago, like most economists at that time I expected that the wage floor reduced employment for some groups of workers. But research that I and others have conducted convinced me that if the minimum wage is set at a moderate level it does not necessarily reduce employment. While some employers cut jobs in response to a minimum-wage increase, others find that a higher wage floor enables them to fill their vacancies and reduce turnover, which raises employment, even though it eats into their profits. The net effect of all this, as has been found in most studies of the minimum wage over the last quarter-century, is that when it is set at a moderate level, the minimum wage has little or no effect on employment.
Alan goes on to point out that “…a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”
That strikes me as the nuance we need to bring to this debate. Some may disagree with his assessment of the national risks of going to $15, though I share Alan’s concerns (we both support a national increase to $12). And at the sub-national level, there are cities with high wage and price bases that can probably absorb $15, particularly with a phase-in period lasting numerous years.
But as much as we can know anything in economics, we know that moderate increases, within the range we’ve seen over the last few decades when dozens of states and cities have raised their minimums, largely have their intended effects, and there’s no reason to pretend otherwise.