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Making Sense of the Minimum Wage: A Roadmap for Navigating Recent Research

By Jeffrey Clemens

Editor’s note: This has been excerpted, with permission from a Cato Institute Policy Analysis. To read the entire report, click here.

For decades, debates over the minimum wage have been tense among advocates, policy­makers, and professional researchers alike. While professional economists were once broadly skeptical of the benefits of a minimum wage, that consensus has eroded.

A striking example comes from The New York Times. In 1987, the Times editorialized that “The Right Minimum Wage” is $0. But in 2015, it opined that “fifteen dollars, phased in gradually … would be adequate and feasible.” Even more recently, it claimed thata living wage is an antidepressant. It is a sleep aid. A diet. A stress reliever. It is a contraceptive, preventing teenage pregnancy. It prevents premature death. It shields children from neglect.

In the eyes of the Times, the minimum wage has taken a 30-year journey from zero to hero. There is no ill, it seems, that a higher minimum wage cannot alleviate, if not outright cure.

Following decades of moderate minimum wage changes, select cities and states have recently passed substantial increases. In Seattle, San Francisco, and New York City, the minimum wage has already reached the milestone of $15. Recent laws passed by California, Illinois, Maryland, Massachusetts, New Jersey, and New York call for statewide increases to $15 in the coming years. Early in February of 2019, the U.S. House Committee on Education and Labor held a hearing to advance the agenda to take a $15 wage floor nationwide.

An erosion of the consensus among academic economists predates this lurch in public policy. Cracks in this consensus emerged in earnest when David Card and Alan Krueger wrote their book Myth and Measurement: The New Economics of the Minimum Wage in the 1990s.

Even so, a 2005 survey found that only 17 percent of economists favored increasing the federal minimum wage from the then floor of $5.15 per hour to $6.15. A more recent wave of research has coincided with a broader shift among academic economists. In 2013, nearly half the respondents to a survey by the University of Chicago agreed that a $9 federal minimum wage would be “desirable policy.” In 2015, only 26 percent of economists in a subsequent University of Chicago survey worried that a $15 minimum wage would significantly reduce employment for low-wage workers.

Proponents of high minimum wages argue that their position is supported by the best evidence, giving them the scientific high ground. But does the research really justify this confidence and the accompanying shift in the conventional wisdom?

Though proponents of a higher wage can cite many papers to support their view, their reading of recent research is incomplete. The research these proponents ignore has many strengths, including trans­parent research methods, analyses of high-quality data, and a truly randomized experiment. In contrast to the research emphasized by advocates, the broader body of work regularly finds that increases in minimum wages cause job losses for individuals with low skill levels.

Another problem with advocates’ calls for a much higher minimum wage is that the theoretical basis for their claims is far more limited than they seem to realize. Advocates offer rationales for why wage rates might be suppressed relative to competitive market values. These arguments are reasonable to a point, but they are a weak basis for making claims about the effects of large minimum wage increases.

Third, economists’ empirical methods have blind spots. Notably, firms’ responses to minimum wage changes can occur with nuanced dynamics. I discuss why economists’ methods will predictably fail to capture such dynamics in their totality.

Finally, the details of employees’ schedules, perks, fringe benefits, and the organization of the workplace are central to firms’ management of both their costs and productivity. Yet data on many dimensions of workers’ relationships with their employers are incomplete, if not entirely lacking.

Consequently, empirical evidence tends to understate the minimum wage’s negative effects and overstate its benefits.

Because $15 wage floors have been narrowly and only recently applied, there is no evidence to support the sweeping claim that a $15 federal minimum wage would benefit disadvantaged households at little cost.

This is particularly true when we consider regions where low housing and labor costs support the social and labor market integration of both immigrants and low-skilled native-born workers.

More than doubling the minimum wage, from $7.25 to $15.00, risks radically altering the entry-level opportunities on which these individuals rely.

Jeffrey Clemens is an associate professor of economics at the University of California, San Diego. His research focuses on health economics, public finance, and the economics of the minimum wage.

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