The Minimum Wage, Job Loss, and Demographics

June 10th, 2014 at 12:10 pm

Some commenters both here and on the NYT site complained that the work I cited in my “who-benefits-from-a-minimum-wage-increase” piece did not build in any job loss effects.  What they do not seem to realize is that accounting for job loss effects in this context would only bolster the case that those who would benefit from the proposed increase are older and more well-educated than in the past.

In CBO’s oft-cited minimum wage study, based on extensive literature, the agency applied an elasticity of -0.1 for teens (a 10% increase in the minimum wage would reduced teen employment by 1%), and one-third that amount for adults.  So accounting for job-loss impacts would raise the average age, schooling, parental status, etc. of affected workers.

I well remember one day many, many years ago in econometrics class when our quite prickly professor put some formula on the board and asked “what’s wrong with this estimator?”  My hand shot up as I responded, “it’s biased!”

To which he replied, “Anyone can see that, Mr. Bernstein.  The question is which way does the bias go.”  Since then, I’ve never claimed bias without an adjective (upward, downward, or indeterminate).  I recommend others do the same.

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6 comments in reply to "The Minimum Wage, Job Loss, and Demographics"

  1. Kevin Rica says:

    When the topic is immigration, the argument is that there aren’t enough people willing to work for the minimum wage; We have an impending labor shortage (more jobs than people) so we need more immigrants. Otherwise wages will go up. Only immigration reform can save us.

    So why are we worried about job losses from increasing the minimum wage?

    If we don’t have enough people, then it makes no sense to worry about the job losses.

    And if we need immigrants to prevent wage increases, then why advocate raising the minimum wage.

    We can’t have it both ways.

    Either reduce immigration (for real) or raise the minimum wage. Doing both is working at cross purposes and will only result in higher unemployment.

      • Kevin Rica says:


        These articles have no credibility.

        You are quoting papers that say: “This paper addresses this important omission by examining whether firms respond to immigration by expanding their production activities within a city in order to utilize the abundant supply of low-skilled workers?”


        “First, immigrants generally do not have a direct negative impact on the earnings of native-born workers, as native-born workers and immigrant workers generally complement each other rather than compete for the same job. Native-born workers and immigrants tend to have different skill sets and therefore seek different types of jobs. Thus, immigrants are not increasing the labor market competition for native-born workers and therefore do not negatively affect American workers’ earnings.”

        These things are simply not true. We are just now reaching pre-recession employment levels. During that period of time about seven million legal immigrants have come to this country. Where are the jobs that they created?

        Illegal immigrants work construction, fast food, janitorial services, restaurants, assembly-line work, meat-packing lawn care and any other low-paid, low-skilled jobs that legal immigrants and the native-born both work. Native-born workers did these 30 years ago and still do. Immigrants have no special skills. They can’t pick fruit faster because they have four hands. Many can’t even speak English with their bosses. They just work cheaper and accept worse conditions. They work along side the native born in many workplaces doing the same jobs. That means, in that they are competing for the same jobs. We see it every day. When George Bush said on January 7, 2004 that illegals do “ that Americans won’t do.,” it was as big a lie as the Iraq WMD story.

        After the ICE crackdown on Chipotle (where you can see the employees and their skin color and hear them speaking to one another, but can’t see their immigration status), the local Chipotle went from being almost all Hispanic, to almost all African American (like similar businesses here). The studies that you cite are based on the assumption that that NEVER happens. In fact, unless there are other problems of illegality, most business just re-open a short time after an immigration raid with legal workers – so obviously there are legal workers available. That would be impossible under the assumptions of the studies that you cite.

        Any competent modeler can show that lead zeppelins are an environmentally safe way to move bulk freight across the Atlantic: she just has to assume that lead is lighter than air. Of course, since her premise is false, she has proven nothing.

        The works you cite are always based on the patently false assumption that illegal immigrants don’t compete with low-skilled natives (who suffer from high unemployment and low wages). As the French say, “si ma tante en avait, on l’appellerait mon oncle” – roughly, but not crudely, translated as, “If my aunt was a man, she’d be my uncle.”

        When you cite studies that begin with honest premises, I will look at them seriously.

  2. Larry Signor says:

    I think estimates of the effects of the minimum wage increase are downward biased. If the MW growth equals or exceeds inflation, there must be a multiplier involved that accelerates growth. Consider the anti-Picketty; r<g; an increase in MW will decrease [r] and increase [g]. In short, an increase in MW looks like an economic loser, but is probably an economic home run.

    • Robert Buttons says:

      If MW was as stimulative as you say, we could just increase it to infinity. Show me where, in your model, an infinite MW is unworkable.

  3. Richard says:

    You are right on about the need to raise the minimum wage. Workers in this low paying group are no longer teens looking for part time work. These workers have families which they need to support. The present rate does not provide enough to these workers to even sustain the basic needs!!