By Holly Sklar
Extensive research refutes the claim that increasing the minimum wage causes increased unemployment and business closures. (See list below.)
The buying power of the minimum wage reached its peak in 1968 at $12.71, adjusting for the cost of living in 2021 dollars. The unemployment rate went from 3.8% in 1967 to 3.6% in 1968 to 3.5% in 1969. The next time the unemployment rate came close to those levels was after the minimum wage raises of 1996 and 1997. Business Week observed in 2001, “Many economists have backed away from the argument that minimum wage [laws] lead to fewer jobs.”
Numerous states raised their minimum wages above the federal level during the 1997-2007 period the federal minimum wage remained stuck at $5.15. Research by the Fiscal Policy Institute and others showed that states that raised their minimum wages above the federal level experienced better employment and small business trends than states that did not.
A series of rigorous studies by the Institute for Research on Labor and Employment (IRLE) beginning in 2008 significantly advanced the research on minimum wage employment effects. Minimum Wage Effects Across State Borders compared all neighboring counties in the U.S. located on different sides of a state border with different minimum wage levels between 1990 and 2006 and found no adverse employment effects from higher minimum wages.
The IRLE report, Spatial Heterogeneity and Minimum Wages: Employment Estimates for Teens Using Cross-State Commuting Zones, found “no discernable disemployment effect, even when minimum wage increases lead to relatively large wage changes.” Do Minimum Wages Really Reduce Teen Employment? analyzed the 1990-2009 period. Carefully controlling for more factors than previous minimum wage studies, the researchers found the answer is no.
In a 2013 report, Why Does the Minimum Wage Have No Discernible Effect on Employment?, the Center for Economic and Policy Research analyzed extensive research conducted since the 1990s. They conclude that “the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.” They note that “the cost shock of the minimum wage is small relative to most firms’ overall costs.” They explore various means of adjustment by employers such as increased worker productivity and diminished wage gap between lower and higher paid employees and say, “probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.”
Minimum wage research was strengthened significantly by Cengiz, Dube, Lindner and Zipperer in The Effect of Minimum Wages on Low-Wage Jobs, published in The Quarterly Journal of Economics in 2019. They “estimate the effect of minimum wages on low-wage jobs using 138 prominent state-level minimum wage changes between 1979 and 2016 in the United States” and “find that the overall number of low-wage jobs remained essentially unchanged over the five years following the increase.”
In evaluating minimum wage increases, it’s important to remember that workers are also customers. Increasing the minimum wage increases consumer spending. As we say in Raising the Minimum Wage to $15 Helps Small Business, “Raising the minimum wage is a very efficient way to boost business and the economy because it puts money in the pockets of people who most need to spend it.” Raising the minimum wage pays off for businesses in other ways. Businesses that pay low wages typically have high employee turnover. With increased wages, businesses see lower employee turnover, which reduces hiring and training costs; decreased employee financial stress and increased morale; increased productivity; lower error and accident rates; less product waste; and better customer service.
Selected Research in chronological order
Lawrence F. Katz and Alan B. Krueger, The Effect of the Minimum Wage on the Fast Food Industry, National Bureau of Economic Research, February 1992.
David Card, Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage, Industrial and Labor Relations Review, October 1992.
David Card and Alan Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton, NJ: Princeton University Press, 1995).
Jared Bernstein and John Schmitt, Economic Policy Institute, Making Work Pay: The Impact of the 1996-97 Minimum Wage Increase, 1998.
Jerold Waltman, Allan McBride, Nicole Camhout, Minimum Wage Increases and the Business Failure Rate, Journal of Economic Issues, March 1998.
A Report by the National Economic Council, The Minimum Wage: Increasing the Reward for Work, March 2000.
David Card and Alan B. Krueger, Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply, American Economic Review, December 2000 (in this reply, Card and Krueger update earlier findings and refute critics).
Holly Sklar, Laryssa Mykyta and Susan Wefald, Raise The Floor: Wages and Policies That Work For All Of Us (Boston: South End Press, 2001), Ch. 4 and pp. 102-08.
Fiscal Policy Institute, States with Minimum Wages above the Federal Level Have Had Faster Small Business and Retail Job Growth, March 2006 (update of 2004 report).
John Burton and Amy Hanauer, Center for American Progress and Policy Matters Ohio, Good for Business: Small Business Growth and State Minimum Wages, May 2006.
Liana Fox, Economic Policy Institute, Minimum Wage Trends: Understanding past and contemporary research, November 8, 2006.
Paul Wolfson, Economic Policy Institute, State Minimum Wages: A Policy That Works, November 27, 2006.
Arindrajit Dube, Suresh Naidu, Michael Reich, The Economic Effects of a Citywide Minimum Wage, Industrial & Labor Relations Review, July 2007.
Jerold L. Waltman, Minimum Wage Policy in Great Britain and the United States (New York: Algora, 2008), pp. 17-19, 132-136, 151-162, 178-180.
Sylvia Allegretto, Arindrajit Dube, Michael Reich, Do Minimum Wages Really Reduce Teen Employment?, Institute for Research on Labor and Employment, Univ. of CA, Berkeley, June 2008.
Arindrajit Dube, T. William Lester, Michael Reich, Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties, Institute for Research on Labor and Employment, August 2008. Published by The Review of Economics and Statistics, November 2010.
Michael F. Thompson, Indiana Business Research Center, Minimum Wage Impacts on Employment: A Look at Indiana, Illinois and Surrounding Midwestern States, Indiana Business Review, Fall 2008.
Sylvia Allegretto, Arindrajit Dube, Michael Reich, Spatial Heterogeneity and Minimum Wages: Employment Estimates for Teens Using Cross-State Commuting Zones, Institute for Research on Labor and Employment, June 25, 2009.
Sylvia Allegretto, Arindrajit Dube, Michael Reich, Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data, Institute for Research on Labor and Employment, June 21, 2010. Published by Industrial Relations, April 2011.
John Schmidt, Why Does the Minimum Wage Have No Discernible Effect on Employment?, Center for Economic and Policy Research, February 2013.
Michael Reich, Ken Jacobs and Miranda Dietz (eds.), When Mandates Work: Raising Labor Standards at the Local Level (Berkeley: University of California Press) 2014.
Michael Reich, The Troubling Fine Print In The Claim That Raising The Minimum Wage Will Cost Jobs, (Response to CBO report), Think Progress, February 19, 2014.
Michael Reich, No, a Minimum-Wage Boost Won’t Kill Jobs, (Response to CBO report), Politico, February 21, 2014.
Michael Reich, Ken Jacobs, Annette Bernhardt, Local Minimum Wage Laws: Impacts on Workers, Families and Businesses, Institute for Research on Labor and Employment, March 2014.
Dale Belman and Paul J. Wolfson, The New Minimum Wage Research, W.E. Upjohn Institute for Employment Research, Employment Research, April 2014.
Dale Belman and Paul J. Wolfson, What Does the Minimum Wage Do?, W.E. Upjohn Institute for Employment Research, (book) 2014.
Center for Economic and Policy Research, 2014 Job Creation Faster in States that Raised the Minimum Wage, June 2014
Center for Economic and Policy Research, Update on the Thirteen States that Raised their Minimum Wage, August 2014.
Daniel Kuehn, The Importance of Study Design in the Minimum Wage Debate, Economic Policy Institute, September 2014.
Justin Wolfers and Jan Zilinsky, Higher Wages for Low-Income Workers Lead to Higher Productivity, Peterson Institute for International Economics, January 13, 2015.
Peterson Institute for International Economics, Raising Lower-Level Wages: When and Why it Makes Economic Sense, April 2015.
Alan Stonecipher and Ben Wilcox, Minimum Wage Policy and the Resulting Effect on Employment, Integrity Florida, July 20, 2015.
Paul J. Wolfson and Dale Belman, 15 Years Of Research on U.S. Employment and the Minimum Wage, Tuck School of Business, December 2015.
National Employment Law Project, Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels, May 2016.
Executive Office of the President, Raising the Minimum Wage: A Progress Update, October 2016.
Jared Bernstein, “New evidence of the minimum wage doing what it’s supposed to do: Help low-wage workers,” Washington Post, March 8, 2018.
Small Business Administration, Small Business Facts: Why Do Business Close?, May 2018.
Sylvia Allegretto, Anna Godøy, Carl Nadler, Michael Reich, The New Wave of Local Minimum Wage Policies: Evidence from Six Cities, Institute for Research on Labor and Employment, September 6, 2018.
Doruk Cengiz, Arindrajit Dube, Attila Lindner, Ben Zipperer, The Effect of Minimum Wages on Low-Wage Jobs, The Quarterly Journal of Economics, August 2019.
Jason Bram, Fatih Karahan, Brendan Moore, Minimum Wage Impacts along the New York-Pennsylvania Border, Liberty Street Economics, Federal Reserve Bank of New York, September 25, 2019.
Greg David, “NY Fed: Minimum wage hikes didn’t kill jobs,” Crain’s New York Business, September 25, 2019.
Arindrajit Dube and Attila S. Lindner, City Limits: What do Local-Area Minimum Wages Do?, National Bureau of Economic Research, October 2020.
Anna Godøy and Michael Reich, Are Minimum Wage Effects Greater in Low-Wage Areas?, Institute for Research on Labor and Employment, September 2020. Published by Industrial Relations in 2021.
Doruk Cengiz, Arindrajit Dube, Attila S. Lindner, David Zentler-Munro, Seeing Beyond the Trees: Using Machine Learning to Estimate the Impact of Minimum Wages on Labor Market Outcomes, National Bureau of Economic Research, January 2021.
Holly Sklar and Alissa Barron-Menza, Raising the Minimum Wage to $15 Helps Small Business, Business for a Fair Minimum Wage, February 24, 2021.
Updated 2021. More research and links to be added.
Holly Sklar is the CEO of Business for a Fair Minimum Wage.
Copyright 2021 Holly Sklar
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