Real Economists on Raising the Minimum Wage (Not a List)

[Andrew D]

ECON 101.

Economics 101 is a course which uses entirely artificial formulas, etc., to introduce beginning students to basic concepts. If one were to limit oneself to such a rudimentary "understanding" of economics, one might well conclude that the issue -- whether raising the minimum wage increases unemployment among those earning the minimum wage -- could be resolved with a pencil, a straightedge, and two lines on a piece of graph paper.

Actual economists, however, study the world which actually exists.

As stated in the opening posting, the Council of Economic Advisors found in 1999 that "the weight of the evidence suggests that modest increases in the minimum wage have had very little or no effect on employment." In itself, that is more than enough to overwhelm completely the notional conclusions simplistically derived from a less-than-sophomoric grasp of economic realities.

But just last month, the Council for Economic and Policy Research issued a major report on precisely the issue which confronts us. It concludes that "the minimum wage has little or no discernible effect on the employment prospects of low-wage workers."

That is not the conclusion merely of a single study. On the contrary:

This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.

The entire report is well worth reading. Here are four salient excerpts.

First, the status of minimum-wage research in the 1970s:

In 1977, the Minimum Wage Study Commission (MWSC) undertook a review of the existing research on the minimum wage in the United States (and Canada), with a particular focus on the likely impact of indexing the minimum wage to inflation and providing a separate, lower, minimum for younger workers. ... Their summary of the theoretical and empirical research through the late 1970s suggested that any "disemployment" effects of the minimum wage were small and almost exclusively limited to teenagers and possibly other younger workers.
For a decade, the MWSC's conclusions remained the dominant view in the economics profession.

Second, developments in minimum-wage research in the 1990s:

By the early 1990s, however, several researchers had begun to take a fresh look at the minimum wage. The principal innovations of what came to be known as "the new minimum wage research" were the use of "natural experiments" and cross-state variation in the "bite" of the minimum wage.

Natural experiments sought to reproduce in the real world some of the features of a laboratory experiment. ...

Without a doubt, the most influential of the studies using a natural experiment was David Card and Alan Krueger's (1994) paper on the impact on fast-food employment of the 1992 increase in the New Jersey state minimum wage. Card and Krueger ... found "no evidence that the rise in New Jersey's minimum wage reduced employment at fast-food restaurants in the state."

The "New Minimum Wage" research also emphasized research methods based on important differences in the "bite" of the federal minimum across the states. Any given increase in the federal minimum, the thinking went, should have more impact in low-wage states, where many workers would be eligible for an increase, than it would in high-wage states, where a smaller share of the workforce would be affected. Card ... concluded: "Comparisons of grouped and individual state data confirm that the rise in the minimum wage raised average teenage wages... On the other hand, there is no evidence that the rise in the minimum wage significantly lowered teenage employment rates..."

Third, two meta-studies done in the late 2000s:

Meta-studies are “studies of studies” that use a set of well-defined statistical techniques to pool the results of a large number of separate analyses. Meta-study techniques effectively increase the amount of data available for analysis and can provide a much sharper picture of statistical relationships than is possible in any individual study. ...

Hristos Doucouliagos and T. D. Stanley (2009) conducted a meta-study of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment in the United States. ... Doucouliagos and Stanley concluded that their results “...corroborate [Card and Krueger's] overall finding of an insignificant employment effect (both practically and statistically) from minimum-wage raises.”

Paul Wolfson and Dale Belman have carried out their own meta-analysis of the minimum wage, focusing on studies published only since 2000. They identified 27 minimum wage studies that produced the necessary elasticity estimates and corresponding standard errors, yielding 201 employment estimates in total. They then produced a range of meta-estimates, controlling for many features of the underlying studies, including the type of worker analyzed (teens or fast food workers), whether the study focused on the supply or the demand side of the labor market, who the authors of the study were, and other characteristics. The resulting estimates varied, but revealed no statistically significant negative employment effects of the minimum wage ....

Fourth, four of "the most important studies conducted over the last decade":

Probably the most important and influential paper written on the minimum wage in the last decade was Dube, Lester, and Reich (2010)'s study ....

* * *

... Dube, Lester and Reich (2010) essentially replicated Card and Krueger's New Jersey-Pennsylvania experiment thousands of times, by comparing employment differences across contiguous U.S. counties with different levels of the minimum wage. ...
Their methodology effectively generalizes the Card and Krueger New Jersey-Pennsylvania study, but with several advantages. First, the much larger number of cases allowed Dube, Lester, and Reich to look at a much larger distribution of employment outcomes than was possible in the single case of the 1992 increase in the New Jersey minimum wage. Second, since they followed counties over a 16-year period, the researchers were also able to test for the possibility of longer-term effects. Finally, because the relative minimum wage varied across counties over time, the minimum wage in a particular county could, at different points in time, be lower, identical to, and higher than the minimum wage in its pair, providing substantially more experimental variation than in the New Jersey-Pennsylvania (and many similar) studies. Using this large sample of border counties, and these statistical advantages over earlier research, Dube, Lester, and Reich "...find strong earnings effects and no employment effects of minimum wage increases."

Independently of Dube, Lester, and Reich, economists John Addison, McKinley Blackburn, and Chad Cotti used similar county level data for the restaurant-and-bar sector to arrive at similar conclusions. Addison, Blackburn, and Cotti found no net employment effect of the minimum wage in the restaurant-and-bar sector. More importantly, using reasoning similar to Dube, Lester, and Reich, they also concluded that the standard state panel-data techniques that have typically yielded negative employment effects of the minimum wage appear to be biased toward finding that result ....

Sylvia Allegretto, Dube, and Reich (2011) ... included data covering the deep recession that ran from December 2007 through June 2009, allowing them to measure any possible interactions between the minimum wage and strong economic downturns.

... [O]nce they controlled for different regional trends, the estimated employment effects of the minimum wage disappeared, turning slightly positive, but not statistically significantly different from zero.

Allegretto, Dube, and Reich also investigated whether the impact of the minimum wage is greater in economic downturns. They "...do not find evidence that the effects are systematically different in periods of high versus low overall unemployment."

Barry Hirsch, Bruce Kaufman, and Tatyana Zelenska (2011) studied the impact of the 2007-2009 increases in the federal minimum wage on a sample of 81 fast-food restaurants in Georgia and Alabama. ...

Hirsch, Kaufman, and Zelenska gathered ... electronic payroll data obtained from the three owners of the 81 establishments. The data covered a three-year period from January 2007 through December 2009, which brackets the July 2007, July 2008, and July 2009 increases in the federal minimum wage. These data allowed the researchers to conduct before-and-after tests of changes in wages and employment at the restaurants. If the minimum wage had a negative effect on employment, they would expect to observe larger increases in wages at the lower-wage restaurants, accompanied by bigger declines in employment. In fact, they found: "...in line with other recent studies, that the measured employment impact is variable across establishments, but overall not statistically distinguishable from zero. The same absence of a significant negative effect is found for employee hours, even when examined over a three-year period."

Is there research to the contrary? Of course.

But that is the value both of reports such as this one and of meta-studies: They tell us what the weight of the evidence is. As of 1999, "the weight of the evidence suggest[ed] that modest increases in the minimum wage have had very little or no effect on employment." And as of 2013, “[t]he weight of th[e] evidence points to little or no employment response to modest increases in the minimum wage.”

On one hand, there is the weight of the evidence. On the other hand, there is a simplistic notion derived from an introductory course in economics. Readers will have to draw their own conclusions.

[rubato]

For anyone who cares about evidence the idea that raising the minimum wage increases unemployment significantly is a dead issue. It is false.

The CEPR report and others you mention are conclusive.

http://www.cepr.net/index.php/publicati ... employment




This plots the output of many studies and shows that they all converge strongly on zero with only a very slight negative bias.

yrs,
rubato

[dgs49]

Andrew, again I have to say, you don't usually post stupid stuff, but you are out to lunch on this one.

Consider the word, "modest," and its impact on everything you have posted on this subject. It is indefinable and meaningless.

Consider the case in, say, urban New Jersey, where the statutory minimum wage might be $8.00, but NOBODY WILL WORK FOR THAT AMOUNT, because the true, economic minimum wage exceeds it. In that case, an increase in the statutory MW will have NO EFFECT on employment, will it? And those are the places where politically-motivated "economists" look to gather their data. The relevant information is to be found in areas where the economic minimum wage would be LOWER or EQUAL TO the statutory minimum wage, and in those places the normal rules of economics will apply. That is, an increase in the cost of the relevant commodity will result in consumers of it using less, seeking alternatives, and going to the black market.

As economics is an inexact science, it is susceptible to all sorts of manipulations by those who want to reach a desired conclusion. But the basic rules always apply.

[rubato]

"... But the basic rules always apply.

Actually they don't. And they don't always in the real sciences either.

The Ideal gas law, for example, only works in a limited range of temperatures and pressures.

Economics is even worse off than that, they don't have 'laws' in any sense like that of the physical sciences they only have loose generalizations whose limits of applicability are still being worked out.

yrs,
rubato

[Econoline]

Gee, it looks like increasing the minimum wage increases unemployment, except for when it doesn't, and increasing the minimum wage has no effect on unemployment, except for when it does. Did I get that right?

[oldr_n_wsr]

Gee, it looks like increasing the minimum wage increases unemployment, except for when it doesn't, and increasing the minimum wage has no effect on unemployment, except for when it does. Did I get that right?

Exactly.

[rubato]

Gee, it looks like increasing the minimum wage increases unemployment, except for when it doesn't, and increasing the minimum wage has no effect on unemployment, except for when it does. Did I get that right?

Actually, it converges on zero. Any effect is tiny or nil.

yrs,
rubato

[dgs49]

Dearest Econoline: The question might be characterized in the following example:

Say some empathetic Emperor decided that he wanted to eliminate poverty in his empire. He decreed that there would be (in today's U.S. dollars) a minimum wage of $25/hour.

It is not difficult to see that this initiative would have catastrophic results, unforseen by our well-meaning monarch. Small businesses, such as restaurants, would have to either raise their prices to prohibitive levels in order to pay their staff, or simply go out of business. People who now would consider eating out a couple times a week would have to forego that pleasure, or cut it back to once or twice a month, as eating out would cost a minimum $100. Janitor service would become so prohibitively expensive that businesses would upgrade cleaning equipment to require an absolute minimum of human involvement, and those people would be trained technicians. And so on.

The job market for, say, high school dropouts, or the mildly retarded would dry up completely, because those people would simply have no way of earning anywhere near the minimum wage.

So the question is, if raising it dramatically is clearly a bad and stupid thing, how much can you raise it without seeing the harmful results that occur when you raise the required value of human effort beyond its economic value?

Or, to compare it to something the rubato person would appreciate, if you can tolerate water with, say 22ppb arsenic, how much arsenic can you tolerate without getting sick? And do you voluntarily add more arsenic in the hope that it won't do any measurable harm?

The minimum wage in itself is a stupid, stupid idea, and should be abolished.

[dgs49]

Fast-food workers strike, citing low wages: “It's not enough”
Thu Apr 4, 2013 10:51 AM EDT

[Picture deleted]
Fast food workers and supporters picket outside a McDonald's restaurant Thursday, April 4, 2013, in Midtown Manhattan.
By Barbara Raab, Senior Producer, NBC News

They work for some of the biggest businesses in the United States, yet they are among the country's lowest-paid workers.
On Thursday, fast-food workers staged walkouts at McDonald's, Burger King, Taco Bell and other restaurants in New York City to call attention to their plight. Organizers scheduled the job actions to commemorate the day Rev. Dr. Martin Luther King Jr. was assassinated 45 years ago in Memphis, where he was supporting a strike by sanitation workers.

"It's not enough," Elba Godoy, a crew member at a McDonald's just a few blocks from Times Square, said of her $7.25-per-hour minimum wage, which helps support her extended family of seven. "They don't like [that we're out here], but we have to do it. We cannot survive on $7.25."
Godoy and her colleagues are seeking a raise to $15 an hour and the right to form a union without retaliation. The walkout is part of a national movement by low-wage workers to raise wages and gain rights.

The National Employment Law Project, a group that advocates for a higher minimum wage, says the purchasing power of the minimum wage is 30 percent lower today than it was in 1968. It has documented, since the start of the recession, a growth in low-wage jobs and the disappearance of jobs that it calls "mid-wage." Specifically, NELP finds:

• Lower-wage occupations constituted 21 percent of recession losses, but 58 percent of recovery growth;
• Mid-wage occupations constituted 60 percent of recession losses, but only 22 percent of recovery growth;
• Higher-wage occupations constituted 19 percent of recession job losses, and 20 percent of recovery growth.

In the fast food industry, NELP says, the big names have weathered the recession, and they are seeing solid profits and passing them along to top executives and shareholders, but not to their lowest-paid workers. Fast food and other low-wage workers often qualify for food stamps and other public assistance, meaning that taxpayers subsidize their wages.

[Picture deleted]

"We cannot survive on $7.25," says Elba Godoy, a McDonald's worker.

The low-wage trend is expected to continue; the government estimates that six out of the top 10 growing occupations over the next decade will be in relatively low-wage, low-skill jobs.

In a statement, McDonald's said the company and its franchises "work hard every day to treat McDonald's employees with dignity and respect. Employees are paid competitive wages and have access to a range of benefits to meet their individual needs."

"In addition," the company said, "employees who want to go from crew to management can take advantage of a variety of training and professional development opportunities."

Michael Saltsman, research director at the free market-leaning Employment Policies Institute, says that by demanding $15 an hour, these employees are hastening their own demise.

“The workers aren’t in a fight with management,” he said, “they’re in a fight with technology.” At some point, he said, “the cost of service is going to get trumped by the customers’ demand for lower prices,” and people will be replaced by less expensive machines, like a burger-making robot being marketed by a San Francisco company.

For those looking to climb the wage ladder, a recent government report contained some sobering news: some of the most numerous and available jobs in America are also its lowest-paying.

Topping the list of most common jobs is retail salespeople, followed by cashiers, and, in third place, food service workers. There are more than 2.9 million of those folks, and they earn the lowest median wage in America: $8.78 an hour, for an average annual wage of $18,720 per year -- if, that is, they work full-time. That amount is just above the poverty line for a family of three; below the line for a family of four or more.

"Enough’s enough," said 24-year-old Alterique Hall, one of Godoy's co-workers. "Low-paid workers are sick and tired of being sick and tired at the end of the day. We get a pat on the back saying, ‘You’ll be fine, you’ll make it somehow."" He says he can't make ends meet on the $8-per-hour he's paid, and often relies on his grandmother and aunt for meals.

"Help us get a job at your office," he said, gesturing to the army of white collar workers scurrying to their high-rise buildings.

[Picture deleted]

Alterique Hall says he can't make ends meet on the $8-per-hour he's paid, and often relies on his grandmother and aunt for meals.

[oldr_n_wsr]

The low-wage trend is expected to continue; the government estimates that six out of the top 10 growing occupations over the next decade will be in relatively low-wage, low-skill jobs.

So what are we supposed to do, make them high wage, low skilled jobs? Sorry, working in fast food is a stepping stone to a better career. You should be broadening your horizons rather than staying and forever asking "you want fries with that?"
I worked at Roy Rogers for a number of years and always the managers took me with them when they had to turn over another Roys on the Island as it had gone to hell in a hand basket. I could not imagine at the time that working at Roys would be my life long job. It was a job, it was money and it gave me experience and references. Years later, I met a former manager at a resturant he owned and he asked if I wanted to manage it. I was already an EE for over 5 years and enjoyed what I was doing and said no thank you. Resturants are not my expertise.

If all you ever do is your job, than that is all you will ever do.

$15 and hour for dropping fries in the frier or flipping burgers? They are kidding me right?

[dales]

They're getting $11/hr in SF (SF minimum wage law).


What's another $4?

[Crackpot]

They were advertising 10.50 here when minimum wage was 5.75

[Gob]

Australia A$15.96 ($16.45) per hour, A$606.40 ($625) or $32,508 US pa.
Canada ranges from C$9.50 to C$11.00 per hour $19,960 US pa.
France €9.43 per hour; €1,430.22 per month $23,837 US pa.
New Zealand NZ$13.75 per hour for workers 18 years old or older, $22,520 US pa.
United Kingdom £6.19 ($9.98) per hour (aged 21 and older), $19,833 US pa.
United States US$7.25 per hour. $15,080 US pa.

Don't worry Dave, the third world economy of the USA is already way behind the civilised world, you keep it there mate!!

[dgs49]

Fucking hilarious, Gobster! You are joking, right?

We should modify our policies to be like FRANCE??????? The UK?

So our economy can be like theirs?

Priceless.

Unlike those other countries, the United States is, at least theoretically, constrained by a Constitution under which the Government has NOT committed to saving the wretched from their natural lot in life.

It is amazing how the people on this board, who have no idea where the MW fits into most peoples' lives, can pontificate about related public policy. We do not live in a caste system in the U.S. If you remain in a MW job for more than a year or so, YOU DESERVE TO BE MAKING MINIMUM WAGE! That's all you are worth.

[oldr_n_wsr]

Pay rate aside, I have found (and I have said this before) that:
If all you ever do is "your job", then that is all you will ever do.

I have worked minimum wage jobs, but it wasn't long before I was above minium wage in those jobs. As soon as learned what to do and how to do it that I could do it well, do it fast and then expand what I was doing. The bosses noticed and quickley you get more responibility and more pay. But if you sit in front of the fryer making french fries all day and don't try and help others or do other things, well then you are going to be a professional french frier and must accept the pay grade for that position.

I do not have any asperations to become the head engineer or VP of engineering. I am happy in my position and accept the salary that position pays. If one hates their job they need to ask themselves "is it the job or the pay or both that you hate?"

ETA
If you hate your job then regardless of what you make, your are still going to hate your job. More money may make it more "tolerable" but still you will hate it. More money doesn't cure everything.

[Scooter]

Fucking hilarious, Gobster! You are joking, right?

We should modify our policies to be like FRANCE??????? The UK?

So our economy can be like theirs?

Priceless.

Unlike those other countries, the United States is, at least theoretically, constrained by a Constitution under which the Government has NOT committed to saving the wretched from their natural lot in life.

It is amazing how the people on this board, who have no idea where the MW fits into most peoples' lives, can pontificate about related public policy. We do not live in a caste system in the U.S. If you remain in a MW job for more than a year or so, YOU DESERVE TO BE MAKING MINIMUM WAGE! That's all you are worth.

Perhaps Gob can find you a minimum job in Australia cleaning toilets, or something else that would be a step up from what you are doing now.

[Crackpot]

I have worked minimum wage jobs, but it wasn't long before I was above minium wage in those jobs. As soon as learned what to do and how to do it that I could do it well, do it fast and then expand what I was doing. The bosses noticed and quickley you get more responibility and more pay. But if you sit in front of the fryer making french fries all day and don't try and help others or do other things, well then you are going to be a professional french frier and must accept the pay grade for that position.

this hasn't been my experience. well that isn't entirely true My work was recognized and I gained more responsibility. unfortunately the part of the company that held the purse strings was completely divorced from the part that actually did work which was further complicated by my contract status. When I finally got liad off (which triggered a minor revolt with my immediate bosses) I was doing Senior Designer work at junior layout pay and title.

What I;ve learned is that loyaly and a good work ethic will not get you anywhere neaqr as much as an inflated self worth, who you know and a mecenary mentality.

[oldr_n_wsr]

What I;ve learned is that loyaly and a good work ethic will not get you anywhere neaqr as much as an inflated self worth, who you know and a mecenary mentality.

Well loyalty might have bit me in the ass as after 24 years, 11 months and 2 1/2 weeks, I got layed off. And during the time there I took hits (no raises for years at a time) when the company took hits, but I also profited when the company profited (bonuses, raises, stock options cashed in at over $100K gross). And I am brutaly honest (to a fault) about what I know and what I am capable of. I don't know how else to be. Mercenery I am not.

My current job they saw fit to give me a raise and a bonus only 6 months into it. So I 'll continue to do it my way. Your results may vary.

[dales]

In this shitty Obama economy, be happy you have a job.

[oldr_n_wsr]

I certainly am. I commute over 70 miles a day for this job. Used to be 1.5 miles.