Neumark looked at studies and reviews that used different techniques and filters and that covered different time periods. He concluded that, regarding those minimum wages enacted from 2007 through 2015,
“a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession. This is a small drop in aggregate employment that should be weighed against increased earnings for still-employed workers because of higher minimum wages.”
A job is a precious thing. Is it fair to call a loss of 100,000 to 200,000 jobs “small”? The total number of nonfarm jobs in the country is almost 144,000,000. During the last months of the George W. Bush administration, we were losing as many as 800,000 jobs a month. This year, in March alone, the nonfarm payroll rose by 215,000 jobs. Neumark’s characterization of the estimated loss is fair.
PolitiFact also did a review of minimum wage hikes. Having looked at minimum wage increases from 1978 to 2009, they found Ben Carson’s claim of jobless increases due to minimum wage hikes to be false due to the sweeping nature of Carson’s claim. Of the 11 minimum wage hikes that PolitiFact looked at, 7 were followed by an increase in joblessness over a 12-month period, but in 4, it fell. And in 6 of the 7 cases in which it rose, there was a concurrent recession. 5 hikes occurred during a recovery period, and the 4 in which joblessness fell were among those. That PolitiFact included recessions and recoveries in their survey showed a valiant attempt at rigor, but PolitiFact looked at changes over a twelve-month period. How do you control for all the factors that might affect joblessness over that time scale? And how significant is a sample size of 11? The PolitiFact analysis was one of the most straight-forward I found, but the associated caveats and questions indicate why all commentary on the minimum wage and jobs should be carefully dissected and questioned.
Danny Vinik, writing in the New Republic, reports on a study of 14 states that increased their minimum wages in 2014. For each, “employment growth was faster and the unemployment rate declined further than in states where the minimum wage was unchanged.”
Similarly, the Department of Labor says, “In a letter to President Obama and congressional leaders urging a minimum wage increase, more than 600 economists, including 7 Nobel Prize winners wrote,
"In recent years there have been important developments in the academic literature … with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers…. Research suggests that a minimum wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front."”
Robert Reich has said that “research shows” that a higher minimum wage creates jobs because people spend most of their money in the local economy, fueling jobs growth. There is no link to the research, but the statement is in agreement with the comments immediately above.
All these studies looked back to see what happened after a hike of known size was implemented (I am assuming that the developments, evidence, and research alluded to by the letter quoted by the Department of Labor were in that vein). Looking forward, the Congressional Budget Office (CBO) estimated the consequences of a new, steeper hike to the minimum wage. They came up with 500,000 jobs being lost. But for those who would use this report to argue against the minimum wage, as Republicans in Congress of course did, the New York Times points out some problems.
500,000 is far worse than 200,000, but it still counts as a one-time, “small drop in aggregate employment” given the perspective above.
The employment estimates of the CBO report “have been disputed by a wide variety of nonpartisan economic studies.”
The CBO report “was almost entirely positive about the benefits of raising the minimum wage.”
500,000 was just the median of the actual estimate, which had a whopping range of from 0 to 1,000,000, with a 66% likelihood. It projected a 33% chance of more than a million losses or of increased employment. That is, the expected loss is anything between 0 and 1,000,000, unless it’s larger or smaller. Such an estimate is of little utility and may derive from the fact that the CBO just surveyed the economic literature and “chose a figure more conservative than the most recent and rigorous studies have found.” Wait. What?
Also note that the hike proposed in the CBO study was larger than those for which there is diagnostic literature (the size of the increase being another variable adding to the complexity of any analysis).
Out of these, then, Neumark’s numbers are the more rigorously argued and specific to an identified time frame: 100,000 – 200,000 jobs likely were lost due to hikes in the minimum wage from 2007 through 2015. We also have the 7 cases in the Politifact review that showed job losses. Then again, I questioned whether a review could account for all the factors that might impact job loss during a year. How well could any study compare job losses over a 15-year period to baseline levels before the Great Recession? As uncertain and unsatisfying as these studies and reviews are, though, I believe it is not unreasonable to assume that some “small” number of jobs would be lost, at least immediately.
Are there potential benefits of a minimum wage hike that might have offset the up to 200,000 jobs lost from recent hikes?
The “moral case is that no one should be working full time and still remain in poverty.” Yet, that is the plight of more than 40% of restaurant workers, some of those most in need of a living minimum wage.
Minimum wage increases likely reduce the load on welfare. Many minimum wage earners, including employees of some very large corporations, still need food stamps or tax credits. “The minimum wage, by contrast, provides income support but without the discouraging effects of welfare.” However, in another “Economic Letter,” Neumark says that the effect may be small, and there may be better methods: “There is little evidence that higher minimum wages alone reduce poverty or dependence on government programs. The earned income tax credit targets low-income families much better, increases employment, and reduces poverty, and for all these reasons seems far more effective.” He goes on to say that “Because minimum wages focus on low worker wages and not low family incomes—and because these two conditions are only weakly related—the targeting of minimum wages is imprecise: Few of the benefits are likely to flow to poor families, and some go to quite high-income families.” There have been any number of anecdotal reports about individuals and families trying to scrape by on minimum wage, but the absolute numbers are not that great. Small or not, though, there almost certainly would be some effect on welfare, which should be particularly welcome to recipients and conservatives alike. Furthermore, since the numbers are small, it’s hard to image negative ramifications reverberating through the economy.
According to Labor Secretary Thomas Perez, a higher minimum wage contributes to “reducing attrition and having a more effective workforce.” “Effectiveness” or “efficiency” arguments tend to be nebulous, but this one apparently appeals to businesses as varied as In-N-Out Burger, Costco, QuikTrip, Ace Hardware, and the Gap. Richard Florida, in The Atlantic’s Citylab, discusses the results of “more than a decade of detailed research at Harvard Business School and MIT’s Sloan School of Management.” In short, “higher wages are the key to greater employee engagement, better customer service, higher productivity, and a better bottom line.” In addition, such a “jobs strategy doesn't require charging customers more.”
Of course, if you are one of those who lose their job due to a hike in the minimum wage, this is of little comfort. There are some and should be more safety net provisions to help tide those workers over. That seems manageable given the potential benefits. There also should be a safety net at least considered for certain small businesses.
Small businesses always are at risk. Short of Special Ops, I can think of nothing that requires more courage than running a small business in our economy. I don’t condone but fully understand the knee-jerk reaction to the minimum wage of the National Federation of Independent Businesses. However, uncritical acceptance of analyses by the American Enterprise Institute, whose motivations are different, are countered by the Department of Labor.
“A July 2015 survey found that 3 out of 5 small business owners with employees support a gradual increase in the minimum wage to $12. The survey reports that small business owners say an increase "would immediately put more money in the pocket of low-wage workers who will then spend the money on things like housing, food, and gas. This boost in demand for goods and services will help stimulate the economy and help create opportunities."”
Also worth considering is that, as with all businesses, labor costs will vary as a percentage of total expenses. Generalities are hard. We can say, though, that non-small businesses, even restaurants, really are at no risk from a hike in the minimum wage.
This is a multifaceted problem with complex inputs each with a wide domain and range. To claim causation one way or another, any study would have to be rigorous, extensive, and extensively documented. Most commentaries exist specifically to claim causation and universally are devoid of those requirements. The bottom line, then, as far as I can tell, is that Republicans are right in an absolute sense: some jobs will be lost following an increase in the minimum wage. But those loses are few and likely will be made up over time because benefits significantly exceed injuries.
The predictable howls from Republicans that economic disaster will flow from any increase to the minimum wage would be silly if they weren’t being used to keep people in poverty.
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