Raising the Minimum Wage Will Definitely Cost Jobs

A survey of the economics research shows the likelihood of a substantial reduction in employment. 

By David Neumark. Excerpts: 

"Most studies find that a minimum wage reduces employment of low-skilled workers, especially the lowest earners most directly affected by raising the minimum wage."

"To provide an accurate reading of the research, Peter Shirley and I surveyed the authors of nearly all U.S. studies estimating the effects of minimum wages on employment published in the past 30 years. We asked them to report to us their best estimate of the employment effect, measured as the “elasticity,” or the percent change in employment for each 1% change in the minimum wage. Most authors responded, and in the few cases in which they did not, we pulled this estimate from their study. 

The results are stark. Across all studies, 79% report that minimum wages reduced employment. In 46% of studies the negative effect was statistically significant. In contrast, only 21% of studies found small positive effects of minimum wages on employment, and in only a minuscule percentage (4%) was the evidence statistically significant. A simplistic but useful calculation shows that the odds of nearly 80% of studies finding negative employment effects if the true effect is zero is less than one in a million.

Across all the studies, the average employment elasticity is about minus-0.15, which means, for example, that a 10% increase in the minimum wage reduces employment of the low-skilled by 1.5%. Extrapolating this to a $15 minimum wage, this 107% increase in the states where the federal minimum wage of $7.25 now prevails would imply a 16% decline in low-skilled employment (broadly consistent with the recent CBO study). That sounds like a substantial job loss."

"a large share of income gains from a higher minimum wage flows to families with higher incomes. An alternative policy—the Earned Income Tax Credit—targets benefits to lower-income families far more effectively, is proven to reduce poverty, and creates rather than destroys jobs.

Our survey finds other important results. First, contrary to what is sometimes claimed, there is no tendency for the most recent research to provide less evidence of job loss. Second, the sharper a study’s focus on workers directly affected by the minimum wage, the stronger the evidence of job loss. For example, the average employment elasticity for those with at most a high school education is minus-0.24, implying that a 10% increase in the minimum wage reduces their employment by 2.4%. The only studies that produce more mixed evidence are studies of low-wage industries, like retail or restaurants. Notably, in these studies the job loss among those most affected by the minimum wage may be masked by employers substituting from lower-skilled to higher-skilled workers."