Did Job Growth Plummet With an Increase in the Minimum Wage?

Danny Vinik reports on some good news about low-income wages.

“Between the first half of 2013 and the first half of 2014, Elise Gould of the Economic Policy Institue found, the real wages of the bottom 10 percent of Americans grew 0.3 percent … The poorest workers generally see their wages stagnate, not rise. But there’s a good reason for why that trend reversed itself and it has to do with the minimum wage … In the meantime, states have raised their own minimum wagesand that has made a difference for the poorest workers.”

“In 2014, 13 states raised their minimum wages … Gould compared wage growth for the bottom 10 percent of Americans in those 13 states with the rest of America. In the former, real wages grew 0.9 percent, a non-negligible increase. In the remaining 37 states, real wages declined 0.1 percent. In other words, wage growth for the bottom 10 percent of Americans is entirely attributable to states that increased their minimum wages.”

Gould Min Wage

Conservatives oppose minimum wage increases because they claim “it will reduce job growth. So, did that happen in those 13 states? Jared Bernstein … found that job growth was higher in states that raised their minimum wages than it was in those that didn’t (1.8 percent versus 1.5 percent).”

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  • zappa24

    But that can’t be. What about that graph I learned in introductory economics that shows what happens if you increase the wage? Wait, what do you mean that model is based on assumptions that might not fit the actual reality?

  • Phaedrus

    If you look up “Monopsony” on Wikipedia you can find a simple graph that explains how raising the minimum wage can actually increase employment in certain situations.

  • NMoshe

    Don’t expect this to actually convince anybody. Free market orthodoxy has become a powerful idolatry and religion for much of the country. No amount of empirical evidence will change their mind.

    • embo66

      Witness “Steve” above!

      • he doesn’t know much and what he does know is wrong, but he’s damn sure about what he thinks he knows

  • Steve

    Minimum wage increases have always and will always reduce jobs and reduce job opportunities.

    It really doesn’t matter how you try to spin or manipulate the numbers. All you need to do is use something called common sense.

    • Sam_Dobermann

      But you are wrong, Steve. Every study and survey has found either no difference or an increase in jobs compared to near by like demographic areas.

      Your “common sense” is based on a flaw. You consider a wage rise to be the only change which would occur. A business is not a closed system. You ignore all the possible and observed changes that go along with a wage rise. Frequently observed effects of wage increases are better employee morale and better customer service and, don’t forget, more people have more money to buy more goods and services which increases jobs!

      • Steve

        There’s at least one minimum wage fact that both Republicans and Democrats agree on: Opposing an increase, as Republicans typically do, is a political loser. So confident are Democrats in the effectiveness of this “wedge” issue that they’ve made it a key part of their 2014 strategy to retake control of the House of Representatives.

        But as is often the case in politics, “effective” is not synonymous with “true.” The case in favor of a higher minimum wage is built on a bewildering number of misleading statistics and straight-up falsehoods, some of which were recently rehashed on the pages of the Washington Post by former Obama administration economist Betsey Stevenson.

        It’s time to correct the record.

        Let’s start with job loss, a defining issue of any minimum wage debate. Opponents of this policy argue that raising business’ labor costs will (absent the ability to increase prices) force them to scale back on employee hours and jobs. Stevenson argues that this consequence is a figment of the conservative imagination, citing “many” studies which show a higher minimum wage has no impact on employment.

        However, “many” is not the same as “most,” and Stevenson crosses the line from professor to pundit when she classifies wage hike-related job loss as a myth.

        In a comprehensive, 182-page summary of the research on this subject from the last two decades, economists David Neumark (UC-Irvine) and William Wascher (Federal Reserve Board) determined that 85 percent of the best research points to a loss of jobs following a minimum wage increase.

        As in any academic discipline, there are outliers. But even the outliers are problematic: For instance, the famous (or rather, infamous) New Jersey study that associated a higher minimum with increased employment was later refuted in the same academic journal that originally published it. More recently, the paper that the President relied on to make his case for a higher minimum was debunked in a study published by the National Bureau of Economic Research.

        Of course, the goal of minimum wage policy is not to reduce employment, but rather poverty. Indeed, Stevenson says explicitly in her commentary that a higher minimum wage will achieve this end. But empirical evidence refutes her point. Twenty-eight states raised minimum wages in the four years prior to passage of the last federal minimum wage increase. Economists from Cornell and American Universities, writing in the Southern Economic Journal, found no associated reduction in poverty rates.

        One reason is poor targeting. According to the Census Bureau, roughly 60 percent of people living in poverty don’t currently work, and thus can’t benefit from a raise. Of those who do work and would be covered by the President’s $9 proposal, Census Bureau data show that the majority live in families far above the poverty line. Across all covered minimum wage earners, the average family income is $50,789.

        Were there no other consequences to raising the minimum wage, imprecise targeting would be a minor drawback. But a study published in the Journal of Human Resources found that a higher minimum wage can actually increase the proportion of families living at or near the poverty line, as the resulting reduction in work hours (or a loss of employment altogether) leads to less take-home pay rather than more.

        Stevenson covers other oft-cited reasons to raise the minimum wage, including the argument that, adjusted for inflation, the minimum wage would already be above $9 an hour. But inflation rates can both rise and fall, which means a minimum wage that truly kept up with inflation since its inception in 1938 would only be $4.12 today—not the current $7.25.

        Stevenson’s broader point is that people are “stuck” waiting for the federal government to give them a raise. Yet research from economists at Florida State University and Miami University finds that two-thirds of minimum wage earners receive a bump in pay in their first 1-12 months on the job.

        For the small number of truly-disadvantaged individuals who remain at the minimum wage for a longer period of time, Congress has put in place a significant income supplement in the form of the Earned Income Tax Credit. A single parent with two children receives an additional $5,200 in income from this credit, bumping their effective hourly wage from $7.25 to $9.76. Some states have added to the federal EITC, boosting the wage even further.

        Undoubtedly, wage hike advocates will continue to be creative in their pro-minimum wage arguments—focusing on the hefty profits of restaurant corporations instead of the far-smaller profits of their affiliated franchisees, for instance, or describing $13-an-hour tipped restaurant employees as “subminimum” wage earners. But no amount of spin can erase the consequences of a wage hike for the poor and others in the entry-level job market. have yet to see a study by anyone not associated with a left wing group that does not show that a minimum wage increase will cost thousands of jobs. Not only will people who are currently employed lose their jobs but it will also stifle job creation for thise who need it most. Why dont you talk to business owners instead of liberal academics and dishonest union backers.

    • how’s that common sense working out for you? my sense is that it has led you to fail at life.

  • ralph_indianapolis

    Remember any talk of helping the working poor can be spun by the GOP as helping minorities.

  • disqus_at95K9bcZs

    The logical response to this scholarly article is “Well duh.” Of course raising the minimum wage will raise the income of those at the bottom. The problem possessing the minimum wage news hounds is they demand too much too soon. Raising the minimum wage to $15 p/h is just stupid and would cause extreme harm to the poor. Even a one time raise to $10 p/h is too much. We should be on a path of smaller raises annually so the income of the poorest can, to some extent, keep up with the increase in the cost of living. To make an increase in the minimum wage an annual requirement or index it to inflation would also be disruptive. The poor should participate the prosperity of a growing economy just like everyone else but in a way not harmful to the economy.

    • aspromised

      Actually, almost all the propsals are “phased in”, many over 3-4 YEARS! Unfortunately they’re phased in over so many years they’ll be behind again before they even get there.

  • Could you address the obvious response: that the correlation is explained by something else?

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