Unintended Consequences of Raising the Minimum Wage

See post by Antony Davies. He is a Mercatus Center–affiliated senior scholar at George Mason University and associate professor of economics at Duquesne University. Excerpts:

"The minimum wage tends to be an emotionally charged topic because both sides believe that they are arguing (at least in part) in defense of the poor. Each side then naturally assumes that the other side must be arguing in opposition to the poor. To promote civil discussion, it is important to recognize that both sides are truly interested in helping the poor. Once we realize that we share this common purpose, we can work together to examine honestly the arguments and evidence for and against the minimum wage.

The purposes of this paper are to examine arguments for and against minimum wage increases and to present new results by comparing employment for workers with differing educational attainments. I begin by looking at minimum wage workers: how many there are, how old they are, in what industries they work. I then list common arguments for and against the minimum wage and show evidence supporting and refuting these arguments. No discussion of the minimum wage is complete without reference to the famous study by economists David Card and Alan B. Krueger, showing that increases in the minimum wage result in more employment.¹ What is less widely noted is the fact that Card and Krueger do not actually measure employment. They measure managers’ claims about employment changes that they had instituted or planned to institute. Therefore, no discussion of the minimum wage should be complete without reference to the study by economists David Neumark and William Wascher that attempts to replicate Card and Krueger’s results. Neumark and Wascher, publishing in the same academic journal as Card and Krueger, replicate Card and Krueger’s study but measure employment using actual payroll data. They find that employment did decline following New Jersey’s minimum wage hike.² This is precisely what standard economic theory predicts should occur. Finally, I will examine some studies that offer compelling theoretical reasons why the minimum wage might not create unemployment.

To close, I will show additional evidence—at the national and state levels—of the relationship between the minimum wage and unemployment, and between the minimum wage and income inequality."