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The evidence shows that raising minimum wages hurts the poor

The economic evidence that has spurred states and cities to move ahead with significant pay increases remains the same: Raising the minimum wage improves the lives of workers without hurting the local economy.

So wrote Paul Sonn of the National Employment Law Project in the Star Tribune in June. But this is not what the economic evidence says.

As I’ve written before, in 2008 economists David Neumark and William L. Wascher surveyed two decades of research into the effects of minimum-wage laws. They focused on five areas; The Effects of Minimum Wages on Employment, Minimum Wage Effects on the Distribution of Wages and Earnings, The Effects of Minimum Wages on the Distribution of Incomes, The Effects of Minimum Wages on Skills, and The Effects of Minimum Wages on Prices and Profits. Here is what they say about each.

The Effects of Minimum Wages on Employment

In other work (Neumark and Wascher 2007a), we review the entire recent body of literature on the employment effects of minimum wages, encompassing more than one hundred papers written since the early 1990s…In our lengthier review of employment effects, we conclude that, overall, about two-thirds of the hundred or so studies that we discuss yield relatively consistent (although by no means statistically significant) evidence of negative employment effects of minimum wages – while only eight give a relatively consistent indication of positive employment effects. In contrast, of the thirty-three studies we identify as providing the most reliable evidence, more than 80 percent point to negative employment effects. (p38-39)

Minimum Wage Effects on the Distribution of Wages and Earnings

…the evidence suggests that higher minimum wages tend, on average, to reduce the economic well-being of affected workers. Evidence regarding the effects on workers initially paid at or just above the minimum suggests that their labor income declines as a result of minimum wage increases, reflecting negative effects of minimum wages on employment and hours. (p139)

The Effects of Minimum Wages on the Distribution of Incomes

In our view, the combined evidence is best summarized as indicating that an increase in the minimum wage largely results in a redistribution of income among low-income families, with some gaining and others losing as a result of diminished employment opportunities or reduced hours, and some likelihood that, on net, poor or low-income families are made worse off. (p189)

The Effects of Minimum Wages on Skills

With respect to schooling, the evidence is stronger, with most of the research for the United States pointing to negative effects…recent research that studies the question more indirectly finds that teens and youths exposed to higher minimum wages have lower wages and earnings when they are in their late twenties, consistent with reduced skill acquisition… (p223)

The Effects of Minimum Wages on Prices and Profits

…the limited empirical evidence consistently indicates that increases in the minimum wage lead to increases in prices of goods and services produced with low-skilled labor…(p247-248)

With the release of the University of Washington research, the economic evidence certainly does remain the same.

John Phelan is an economist at the Center of the American Experiment.




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