On the minimum wage

By Jeremy Jackson, Ph.D.

A recent Forum article indicates the beginning of debate on a proposed $15 minimum wage in North Dakota. Before that debate begins, I want to interject with the latest economic research.

I have researched and written on the effects of the minimum wage, including on my personal website, the PCPE Blog and in a past editorial. My research was also published by the journal Contemporary Economic Policy in 2016.

Advocates for raising the minimum wage seek to increase the well-being of those in need.  This is certainly a noble goal worth pursuing.  However, we should avoid judging policies by their intent. Instead, we should look to evidence of their outcomes.

Economics teaches us that raising the minimum wage leads to job losses.  This principle has been a commonly accepted fact in the discipline until very recently.  In the past twenty years, several empirical papers questioned this belief by providing evidence that employment was unaffected by the minimum wage.  (A review of this debate was published by the Economic Policy Institute in 2014.)  However, a recent paper points to serious flaws in the design of those studies.

Additionally, new working papers are turning the tide back to the traditional view.  These studies use modern statistical techniques to show causation – namely, that increases in the minimum wage cause higher unemployment.

A working paper studying the effects of the Seattle Minimum Wage Ordinance – which raised the minimum wage from $9.47 to $11 in 2015, to $13 in 2016 and finally to $15 in 2017 – found that raising the Seattle minimum wage significantly and detrimentally affected low wage workers.  The increase in hourly wages was counteracted by a decrease in the number of hours worked.  Researchers found that “the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016” despite advocates’ intention to increase earnings.

Another working paper examined state-level data from 1979-2014 to estimate the effect of minimum wage increases on teen unemployment.  It found that the elasticity of the minimum wage is -0.44, meaning that a 10 percent increase in the minimum wage would lead to a 4.4 percent decrease in the employment rate.

This is troubling because my own research finds that the effects of unemployment experienced during youth stay with an individual throughout their lifetime.  This means that the damage inflicted by the minimum wage on today’s young people will continue to harm the heads of tomorrow’s households. 

Despite the good intentions of minimum wage advocates, there is evidence that raising the minimum wage hurts the very people it seeks to help.  Those who are lucky enough to retain employment after a minimum wage hike are certainly better off, but the harm caused to workers who lose their jobs or suffer reduced hours is also real. 

This op-ed appeared in InForum.

The views and opinions expressed in this article belong to the author and do not reflect the official policy or position of any agencies he/she is employed by or affiliated with.

 

 

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