Empirical evidence shows that minimum wage hikes are bad public policy
72% of US based economists oppose a federal minimum wage of $15.00 per hour. Economist Paul Krugman once wrote “So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment.”
Yet the subject continues to be controversial. Across the U.S. there are campaigns underway for state and local governments to hike minimum wages to $15ph. Why is it that the balance of economists, including Paul Krugman once upon a time, say that this would be bad public policy?
One reason is that the balance of empirical research demonstrates that hiking minimum wages is a bad idea.
In 2008, economists David Neumark and William L. Wascher surveyed two decades of research into the effects of minimum-wage laws. They found that “minimum wages reduce employment opportunities for less-skilled workers … (that) a higher minimum wage tends to reduce rather than to increase the earnings of the lowest-skilled individuals … (that) minimum wages do not, on net, reduce poverty … (and that) minimum wages appear to have adverse longer-run effects on wages and earnings.” In 2014, along with economist J.M. Ian Salas, they examined the subsequent literature and concluded “that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”
Research continues. In December 2018, David Neumark updated his review of the research, asking When minimum wages are introduced or raised, are there fewer jobs? He writes
The potential benefits of higher minimum wages come from the higher wages for affected workers, some of whom are in poor or low-income families. The potential downside is that a higher minimum wage may discourage firms from employing the low-wage, low-skill workers that minimum wages are intended to help. If minimum wages reduce employment of low-skill workers, then minimum wages are not a “free lunch” with which to help poor and low-income families, but instead pose a trade-off of benefits for some versus costs for others. Research findings are not unanimous, but especially for the US, evidence suggests that minimum wages reduce the jobs available to low-skill workers.
More research, more evidence that minimum wage hikes are bad public policy.
John Phelan is an economist at the Center of the American Experiment.