Magazine article Regulation

Minimum Wage

Magazine article Regulation

Minimum Wage

Article excerpt

"Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," by David Card and Alan B. Krueger. American Economic Review 84, no. 4 (September 1994): 772-793.

"The Economic Effects of Mandated Wage Floors," by David Neumark. Public Policy Institute of California Occasional Paper. February 2004.

"Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," by David Neumark and William Wascher. November 2006. NBER #12663.

"Minimum Wage Effects across State Borders: Estimates Using Contiguous Counties," by Arindrajit Dube, T. William Lester, and Michael Reich. Review of Economics and Statistics 92, no. 4 (November 2010): 945-964.

"Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," by Sylvia A. Allegretto, Arindrajit Dube, and Michael Reich. Industrial Relations 50, no. 2 (April 2011): 205-240.

"Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?" by David Neumark, J. M. Ian Salas, and William Wascher. January 2013. NBER #18681.

"Effects of the Minimum Wage on Employment Dynamics," by Jonathan Meer and Jeremy West. August 2013. NBER #19262.

"Who Benefits from a Minimum Wage Increase?" by John W. Lopresti and Kevin J. Mumford. April 2015. SSRN #2590346.

The recent ruling by a New York State labor commission to increase the minimum wage for fast-food-chain workers to $15 an hour has revived interest in economists' conclusions about the employment effects of minimum wage increases. In this review I provide a summary of the papers I have found most useful.

Prior to 1992, the consensus was that an increase in the minimum wage reduces employment among those making between the old and new minimum levels. Research indicated that a 10 percent increase in the wage would reduce employment among affected workers by 1-3 percent.

In a series of papers published between 1992 and 1994, David Card and Alan Krueger (both of whom were then at Princeton University; Card is now at the University of California, Berkeley) explored the effect of an increase in the minimum wage in New Jersey on fast-food employment relative to neighboring Pennsylvania, whose minimum wage did not increase. They concluded that the increase did not reduce employment in New Jersey.

Two of the first stylized facts one learns in economics are that prices matter and the demand curves slope downward. Those facts mean that a legally mandated wage increase should result in less employment. So how could Card and Krueger have found no effect? In 2004, David Neumark (then at Michigan State University and now at the University of California, Irvine) argued that a combination of measurement error in the telephone survey used by Card and Krueger and the fact that the wages of many of the workers were already above both the new and old minimum wage accounted for their findings. Neumark also argued that for those workers who remained employed, the minimum wage is not a very effective anti-poverty instrument because only 20-30 percent of low-wage workers live in poor households. That is about the same percentage of minimum wage workers who live in households with incomes three times above the poverty level. And, ironically, the higher minimum wage reduces school and job training enrollment because workers can achieve higher wages with less schooling.

In 2006, Neumark and William Wascher (Federal Reserve) published a long review of the post-Card-and-Krueger minimum wage research and concluded that while some studies supported the findings of no employment effect, the longer and (in their view) methodologically better studies concluded that the combination of the Earned Income Tax Credit and increased minimum wage had very negative employment effects for minority teenagers. Because the price of their employment went up, employer demand for them decreased, while the pool of substitutes (predominantly older, low-skilled women) increased because of the EITC. …

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