Now that President Obama has called for raising the minimum wage, you’re gonna be hearing a lot of arguments about how raising the minimum wage actually hurts the working poor because it did job killer. Here’s a helpful roundup of the data you’ll need to fight back.
If raising the minimum wage did destroy some jobs, it still might make a lot of sense to do it anyways. Think of it this way. If a new technology came out that was going to mean the elimination of some jobs but would end up increasing the pay of millions of people living in poverty, unless it destroyed lots & lots of jobs most folks would consider it a sign of progress. This is especially true for folks at the bottom of the economic ladder, many of whom have to work two or three jobs just to make enough to survive. If raising the minimum wage meant they could cut back on the number of jobs they had to hold, fewer jobs would again be a net plus. It all depends on how many jobs were destroyed.
But it turns out that we don’t have to worry about these kind of trade-offs. After a couple of decades of study, the answers are then: it may or may not make a difference in employment, but if it does most studies stay it’s a small one. Or as CEPR’s Jon Schmitt wrote in a summary of the research,
Across all of the empirical research that has investigated the issue, minimum-wage increases are consistently associated with statistically significant and economically meaningful increases in the wages of affected workers. At the same time, what is striking about the preceding review of possible channels of adjustment – including employment – is how often the weight of the empirical evidence is either inconclusive (statistically insignificant or positive in some cases and negative in others) or suggestive of only small economic effects.
One of the more recent, ingenious studies took advantage of the fact that because the minimum wage hasn’t gone up for a long time, some states have been taking action on their own.
Conservative economists, most notably David Neumark and William Wascher, have used this to compare all states against each other to show that states that raised their minimum wage often lost more jobs than states that didn’t. There’s only one teeny tiny problem with that approach. As researcher Arindrajit Dube explains, these studies assume
that we can find enough control variables to include in our regression that will make Texas look like Massachusetts. As it turns out, this is a heroic assumption that badly biases the results.…
Similarly, the growth rate in low-wage jobs has been quite different in states like Texas, North Dakota, and Indiana even thought these states have had the same binding minimum wage (i.e., the federal) over the past two decades. Unless one controls for the “unobserved” (or more accurately “not directly observed”) sources of heterogeneity in the growth prospects across areas, conclusions may be badly flawed. A telltale sign of this flaw that our studies revealed is that in the state panel model, the job losses occur substantially prior to the actual change in policy.
How to get around this problem? Dube and his compatriots took a trip from earlier research by Card and Krueger, by comparing areas that were right across a state border. Trying to uncover all of the differences between Texas and Massachusetts is pretty tricky, but if there are 2 districts on the border between 2 states where the main difference is that one of them has a higher minimum wage, odds are you can get a pretty clean comparison.
When comparing places directly across a border, many other (potentially unobservable) confounding factors are roughly similar. We implemented this strategy in numerous papers using a variety of data sets (QCEW, QWI, CPS, Census). The results were unambiguous: whatever group we considered — restaurant workers, teenagers, teenagers of disadvantaged backgrounds — the state panel approach always produced an erroneous negative estimate when it came to employment. Once we accounted for the regional heterogeneity, there was no employment loss to speak of. Other authors who have accounted for such heterogeneity largely confirm that employment effects from minimum wage increases in the US have been close to zero or even positive .
Up next: why hiking the minimum wage doesn’t kill lots of jobs.