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 $10.97, adjusting for inflation in 2015 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 higher than 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 at the University of California, Berkeley, 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 Institute for Research on Labor and Employment’s Spacial 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 (an earlier version analyzed 1990-2007). 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 spotlighted two recent meta-studies analyzing the extensive research conducted since the early 1990s; they conclude that "the minimum wage has little or no discernible effect on the employment prospects of low-wage workers. The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms' overall costs and only modest relative to the wages paid to low-wage workers." The Center report explores varied means of adjustment by employers such as increased worker productivity and diminished wage gap between lower and higher paid employees, noting, "But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers."
More recent studies on states and cities with higher minimum wages by the Institute for Research on Labor and Employment, Center for Economic and Policy Research, Integrity Florida and others cited below continue to show that actual minimum wage increases have not caused job loss.
In the 2015 report, Minimum Wage Policy and the Resulting Effect on Employment, the research institute Integrity Florida observes, "Economists cite several reasons why increases in the minimum wage, which raise employers’ cost, generally do not cost jobs. Increased pay adds money to workers’ pocketbooks and allows them to buy more goods and services, creating higher demand, which in turn requires hiring more workers. The higher wage may make it easier to attract applicants and results in less turnover of workers, lowering costs of employers." They report, "Our examination of employment statistics in states found no evidence of employment loss in states that have increased the minimum wage and more evidence that suggests employment increases faster when there is an increase in the minimum wage."
Selected Research in chronological order
Lawrence F. Katz and Alan B. Krueger, “The Effect of the Minimum Wage on the Fast Food Industry,” Industrial Relations Section, Princeton University, 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).
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).
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 and 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.
Holly Sklar, Laryssa Mykyta and Susan Wefald, Raise The Floor: Wages and Policies That Work For All Of Us (Boston: South End Press, 2001/2002), Ch. 4 and pp. 102-08.
Marilyn P. Watkins, Economic Opportunity Institute, “Still Working Well: Washington’s Minimum Wage and the Beginnings of Economic Recovery,” January 21, 2004.
Amy Chasanov, Economic Policy Institute, No Longer Getting By: An Increase in the Minimum Wage is Long Overdue, May 2004.
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.
Paul K. Sonn, Citywide Minimum Wage Laws: A New Policy Tool for Local Governments, (originally published by Brennan Center for Justice) National Employment Law Project, 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 and 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 and Michael Reich, Do Minimum Wages Really Reduce Teen Employment?, Institute for Research on Labor and Employment, Univ. of CA, Berkeley, June 28, 2008.
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.
Hristos Doucouliagos and T. D. Stanley, "Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis," British Journal of Industrial Relations, vol. 47, no. 2, 2009.
Sylvia Allegretto, Arindrajit Dube and Michael Reich, Spacial Heterogeneity and Minimum Wages: Employment Estimates for Teens Using Cross-State Commuting Zones, Institute for Research on Labor and Employment, Univ. of CA, Berkeley, June 25, 2009.
Arindrajit Dube, T. William Lester and Michael Reich, Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties, Institute for Research on Labor and Employment, Univ. of CA, Berkeley, August 2008.
Published by The Review of Economics and Statistics, November 2010.
John Schmitt and David Rosnick, The Wage and Employment Impact of Minimum‐Wage Laws in Three Cities, Center for Economic and Policy Research, March 2011.
Sylvia Allegretto, Arindrajit Dube and 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, Univ. of CA, Berkeley, June 21, 2010.
Published by Industrial Relations, April 2011.
Anne Thompson, What Is Causing Record-High Teen Unemployment? Range of Economic Factors Drives High Teen Unemployment, But Minimum Wage Not One of Them, National Employment Law Project, October 2011.
Sylvia Allegretto, Arindrajit Dube, Michael Reich and Ben Zipperer, Credible Research Designs for Minimum Wage Studies, Institute for Research on Labor and Employment, IRLE Working Paper No. 148-13, 2013
John Schmidt, Why Does the Minimum Wage Have No Discernible Effect on Employment?, (Important overview of years of research), 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 CA: 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 and Annette Bernhardt, Local Minimum Wage Laws: Impacts on Workers, Families and Businesses, Institute for Research on Labor and Employment, IRLE Working Paper No. 104-14, March 2014.
Dale Belman and Paul J. Wolfson, The New Minimum Wage Research, W.E. Upjohn Institute for Employment Research, Employment Research 21:2, 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, States That Raised Their MinimumWage in 2014 Had Stronger Job Growth Than Those That Didn't, April 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.
David Cooper, Lawrence Mishel and John Schmit, We Can Afford a $12.00 Federal Minimum Wage in 2020, Economic Policy Institute, April 2015.
National Employment Law Project, City Minimum Wage Laws: Recent Trends and Economic Evidence, Updated May 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 Working Paper No. 2705499, 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
More research and links to be added.
Holly Sklar is the CEO of Business for a Fair Minimum Wage.
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