Minimal Evidence

Flawed studies drive the call for an increased minimum wage.

Benjamin Zycher from the June 1995 issue

(Page 3 of 3)

At the time, low-wage regions of the United States were growing faster overall than high-wage areas. The same might have been true within Texas, but the Katz/Krueger analysis does not control for different growth rates. And if low-wage areas were growing faster, employment might still have jumped despite the increase in the minimum wage. In short, the Katz/Krueger paper provides little basis to reject the traditional view of the employment effect of the minimum wage.

Thus does the Law of Demand still stand. New research by Donald Deere and Finis Welch of Texas A&M and Kevin M. Murphy of the University of Chicago finds substantially greater employment losses after the 1990 and 1991 increases in the federal minimum wage for population groups with larger proportions of low-wage workers, high school dropouts, and minority dropouts.

Moreover, people who advocate increasing the minimum wage seem not to have examined its income distribution implications carefully; instead, they make the usual glib argument that an increase in the minimum wage will help "the poor" or even, in President Clinton's words, "the underclass." But the minimum wage tends to shift employment within the class of low-skilled workers, from those with relatively less productivity to those with relatively more--squeezing "the underclass" out of jobs in favor of less-risky, more-productive employees.

And, of course, many people working at the minimum wage are not "poor." They may be middle- or upper-class teenagers working part-time, second earners in a family, seniors working to keep busy, etc. Michael Horrigan of the Bureau of Labor Statistics and Ronald Mincy of the Urban Institute report data for 1987, dividing into income quintiles all "minimum wage families"--families in which at least one person works at the minimum wage. Table 2 presents their findings. Far from what advocates of the minimum wage would have us believe, most minimum wage families are not poor; indeed, about 60 percent are in the middle of the income distribution or higher.

The effect of the minimum wage is an important subject for scholarly exploration and debate. But it is one thing for scholars to write papers challenging conventional wisdom, which then can be subjected to debate and renewed analysis. It is quite another for politicians to latch onto new findings uncritically in their pursuit of interest group advantage. A willingness to argue that water flows uphill is precisely the present stance of the Clinton administration with respect to the minimum wage, and it is unlikely to yield salutary outcomes.