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Do Minimum Wage Increases Really Kill Jobs?

Most employees in the United States are entitled to the federal minimum wage, which is currently $7.25 per hour. The rate hasn’t budged since 2009, when it was raised from $5.85 to its current level. As the Pew Research Center points out, if you factor in inflation, workers making the minimum wage today are actually making less money than they were 7 years ago.

That’s just one reason increasing the federal minimum wage has received broad popular support. A Gallup poll conducted in 2013 found that 76% of Americans are behind an increase, and that support only grows as you suggest bigger and bigger hikes in the minimum wage.

Cities Haven’t Been Hurt By Minimum Wage Hikes Gold coins watches and bills

Thanks to several progressive mayors, a few cities have been experimenting with their own local minimum wage increases, including Oakland, California, where the minimum wage is now $12.25.

Contrary to popular opinion, which holds that a minimum wage increase would force employers to lay off many workers, Oakland’s economy is booming, according to a report prepared six months after the city raised its wage.

In Oakland, Job Market Grew After Wage Increase

Sepi Aghadee, a graduate student in business at Mills College, surveyed 103 businesses in Oakland – only 6% said they had laid off any workers to make room for the higher wages compelled by city law. The city’s labor market has grown overall, too, from 196,400 jobs in February 2015 to 199,900 after the minimum wage was increased.

Raising the wage, however, isn’t enough. Enforcing that new wage, making sure businesses actually pay up, is crucial. When Washington, D.C. raised its minimum wage from the then-federal minimum of $4.25 to $5.25 in 1993, the law was so poorly enforced that the proportion of low-wage workers earning below the minimum wage actually increased. That fact was discovered by a 2011 study commissioned by the Center for Economic and Policy Research (CEPR), which looked at the historical effect of minimum wage increases in D.C., Santa Fe and San Francisco.

For San Francisco & Santa Fe, Losses & Gains Balance Out

Despite D.C.’s underwhelming performance, the study’s results should give hope to progressive lawmakers who plan on raising wages, at least ones who plan on adequately enforcing the hikes.

In San Francisco and Santa Fe, which both raised their local minimum wages to $8.50 in 2004, job losses and job gains balanced out. In other words, raising the minimum wage proved beneficial for low-wage workers, “without a discernible impact on their employment.” The conclusion is clear: people can make more without killing businesses in the process.

This result, substantiated by numerous other papers, isn’t surprising to most labor economists. In fact, the bulk of research going back to the 1970s has found that raising minimum wages will have, at worst, a “small” impact on employment, according to John Schmitt, an economist at CEPR.

Why Do We Think Wage Hikes Hurt Employment?

Even the idea that wage increases would substantially affect teen employment (this is important since almost 50% of workers making the federal minimum wage are between 16 and 24) had been largely dispelled by 1995 – until 2000, that is. In that year, economists David Neumark and William Wascher published their book Minimum Wages, a wide-ranging critique of the previous 3 decades of minimum wage, the vast majority of which supported the view that minimum wages don’t affect employment in a meaningful way.

Neumark and Wascher singled out a specific type of study, “time-series analysis,” as being most reliable and, since the time-series studies they reviewed showed an impact on employment after minimum wage increases, concluded that “the preponderance of evidence supports the views that minimum wages reduce the employment of low-wage workers.”

For the next 10 years, research on the minimum wage was at a stand-still, with one camp arguing that it had no effect on employment and the other camp saying it would hurt employment and businesses. In the meantime, both sides published hundreds of papers, leading Schmitt to say that the possible effect of minimum wages on employment is “one of the most studied topics in all of economics.”

Taking A Broader View

It wasn’t until 2009 that a duo from Hendrix College and Deakin University would break through the stalemate. Chris Doucouliagos and T.D. Stanley performed a massive meta-analysis (essentially a study of other studies) on 64 minimum wage studies carried out from 1972 to 2007.

When they graphed each study according to its “statistical precision,” how close to accurate its authors got, the most accurate studies were all clustered around the conclusion that minimum wages have little to no effect on employment. Which means that when our statistical methods are really good, they tend to present evidence that raising a minimum wage won’t hurt jobs.

Did Doucouliagos and Stanley’s meta-analysis end the argument over minimum wages? Far from it. On that count, the jury is still out. In 2015, the University of Chicago polled 42 pre-eminent US economists on whether or not raising the minimum wage to $15 an hour would hurt employment. Almost 40% said they didn’t know. Votes for and against were roughly split, with 26% of the experts saying a minimum wage increase would force widespread lay-offs and 24% saying it wouldn’t have any effect.

The problem now may be that our view is too broad. With thousands of studies in the books, and more published every day, the topic of minimum wages has become ripe for cherry-picking. Conservative politicians can flip through the results, selecting only those studies that support their argument. So can liberals. That’s how the Economic Policy Institute can cite one quote from Alan Greenspan, a study from Duke University, another from Standard and conclude that “Minimum Wage Increase[s] Hurt[…] Low-Income Families.” It’s also how the same institute, selecting different studies, can publish an opinion like “Raising the federal minimum wage to $10.10 would give working families, and the overall economy, a much-needed boost.”

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