Economics

How Economists Learned to Love Minimum Wage Hikes

Would raising the federal minimum wage to $15 an hour cost jobs?

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Would raising the federal minimum wage to $15 an hour cost jobs? That may seem like a strange question to ask. Forcing an economy-wide hike in the price of something typically means that people will purchase less of it. Other things being equal, forcing employers to pay more for low-wage labor is likely to mean they will employ fewer people.

In recent years, however, liberal policy wonks and Democratic Party stalwarts have begun to reject this answer, claiming, contrary to considerable evidence, that raising the minimum wage might result in no job losses at all. In 2014, President Barack Obama and Senate Democrats proposed raising the federal wage floor from $7.25 to $10.10 an hour. A Congressional Budget Office (CBO) analysis found that the proposal could reduce employment by 500,000 jobs. Yet the White House brushed off this analysis. "Zero is a perfectly reasonable estimate of the impact of minimum wage on employment," said Obama administration economic adviser Jason Furman.

Since then, progressive lawmakers have continued to minimize or dismiss the possibility of negative employment effects from raising the minimum wage, even while backing proposals to raise it higher and higher. In 2019, Sen. Bernie Sanders (I–Vt.) cited a study from the union-backed Economic Policy Institute (EPI) that assumed no net job loss after instituting a $15 minimum wage.

This year, Democrats on the House Education and Labor Committee who favor a $15 federal minimum wage cited another EPI analysis. "High quality academic scholarship confirms that modest increases in the minimum wage have not led to detectable job losses," it said.

What counts as modest? The EPI didn't say. But President Joe Biden tucked a $15 minimum wage into the initial version of his $1.9 trillion COVID relief plan, which in theory was intended to boost the economy rather than harm it.

The debate goes back to a 1993 study by center-left economists Alan Krueger and David Card. In a paper published by the National Bureau of Economic Research, they examined the effect of a 1992 hike in New Jersey's minimum wage by looking at fast-food restaurants in that state and a comparable sample across the border in Pennsylvania. They found no evidence that the New Jersey restaurants shed more jobs following the wage hike.

There were reasons to be wary of drawing larger policy lessons from that finding. For one, the study looked at less than a year's worth of data. For another, the economies of New Jersey and Pennsylvania are not perfectly comparable, owing to various tax, regulatory, and other local factors. And the fast-food restaurants Krueger and Card studied were largely chains, which tend to be better capitalized than small, independent businesses, which are apt to be more sensitive to increases in labor costs. Finally, New Jersey's wage increase was relatively small: a bump from $4.25 to $5.05 an hour.

Their paper nevertheless kicked off a revolution in left-of-center economic thinking. Many respected economists and policy makers on the left now believe and argue minimum wage hikes have minimal negative effects on employment.

Still, there are dissenters. They include University of California, Irvine, -economist David Neumark, who in January co-authored a survey that looked at 30 years of economic research on the minimum wage. That paper, also published by the National Bureau of Economic Research, found that a "clear preponderance"—almost 80 percent—of minimum wage studies since the beginning of the Clinton administration concluded that hikes cost jobs.

Some studies have found that fast-food restaurants cover wage hikes by passing the cost along to consumers rather than reducing employment. At best, this would mean a minimum wage hike acts as a kind of unacknowledged, poorly targeted tax increase that makes fast-food customers (not a particularly wealthy cohort) pay for higher federally mandated wages.

There is also the issue of scale. The 1992 New Jersey hike studied by Card and Krueger increased the base wage by less than 20 percent. Raising the federal minimum wage to $15 an hour would more than double it. A small hike might have a modest effect, especially in pricey urban areas where wages are already relatively high. A national doubling of the minimum wage is likely to have a bigger impact, especially in poorer and rural areas.

Krueger himself raised concerns about the push for a $15 federal minimum before his death. Such a change, he warned in a 2015 New York Times op-ed, "is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States." Krueger wasn't disowning his previous work; he was simply arguing that Democratic policy wisdom had taken his conclusions too far.

The Congressional Budget Office, meanwhile, continues to challenge the notion that increasing the minimum wage has a negligible impact on employment. In February, the nonpartisan budget watchdog produced an analysis of raising the minimum wage to $15.

By the time it took full effect in 2025, the CBO found, the change would result in a net loss of 1.4 million jobs. It said the effect would be concentrated among younger, less-skilled, low-wage workers, the group hit hardest by the COVID-19 recession. As it turned out, answering the original question about whether a wage hike will cost jobs is not so difficult. It takes only one word: Yes.

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  1. Yes, next question.

    1. No, next question. In a perfect conservative’s economy, there are 100 slave laborers who work for free and 1 slaveowner who reaps the benefits of the slave labor. Fortunately, conservatives are rarely in charge.

      The idea that money paid to workers is akin to throwing it hand over fist into a bonfire is ludicrous. That $15 an hour doesn’t vanish, never to be seen again. Instead, workers spend into the economy, where the money continues to circulate. Landlords spend money from tenants. Other businesses spend money from landlords.

      There is no magic black hole that vaporizes money paid to poor people. That money eventually ends up back in the hands of rich people. The single economic truth proved time and again is that the rich get richer.

      1. You’re not to bright, are you? I suppose that’s why you have to lie so blatantly. You can use what little brain you have to simple things like eating and walking. It’s apparent you would like to be the slave owner in your little fantasy that you need to project onto others.

        1. Your glaring lack of economic understanding is appalling. As is your general lack of viable brain cells. How are things going there in the trailer park? Is your sister-bride still spawning Down Syndrome children for you? Or did you trade your older sister in for your younger sister? Speaking of the single-wide, how’s that meth lab out in the lean-to shed doing? Are you finally able to produce meth that doesn’t cause birth defects? Oh, and regarding birth defects, have they given an official name to your yet, or is it still termed “unknown degeneracy”? Is your daddy out of prison yet? I hear the Aryan Brotherhood rejected his membership application. That’s too bad. Perhaps the Muslim Brotherhood will take him in.

        2. Contrary to appearances, there are still rational people out there. The seemingly insurmountable problem is that idiots like the guy you responded to drown them out. It’s likely he never had an econ course, but if he did, both he and his instructors should be euthanized.

  2. The left doesn’t care about facts and evidence. Only about power.

    1. And this is different from the right, how?

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      2. It’s a matter of frequency. The left is wrong far more often and on this issue, they are dead wrong. Small business is finished if we keep artificially inflating the value of commodity skills while creating a surplus by importing them via illegal immigration.

        1. If small businesses can’t survive this, perhaps their goods and services are not needed after all.

      3. As-if the keyword DE-REGULATION of the last administration wasn’t a clue.

  3. Who needs small businesses anyways? We only need Walmart and a high speed Amtrak rail to get us there. It will be splendid.

    1. Progressives only seem to care how something looks, not anything like reality. If you go to a Macdonalds after the hike and ask how things are going, those still left with a job will say “Great!” You will not see those laid off, so they don’t exist for Progressives. Remember in this, as in all things on TV and in the House and Senate, appearances matter.

      1. They’ll see the kiosks and the app orders and prefer the experience.

        So, to the extent that the $10 worker is already getting replaced, it won’t matter if you raise the minimum to the new $15 floor.

      2. McDonald’s and Wal-Mart saw the writing on the wall years ago.

        My local Wal-Mart, like many, is packed on the weekend. How many cashier lanes open? Maybe one, if you’re lucky. It’s all self checkout.

        Local McD’s? They installed kiosks 2 years ago.

        1. And the excess profits that used to go into employee paychecks now goes into the bank accounts of the Waltons. That must please you very much as you self-scan your shoddy Walmart goods.

          1. Do you find anything useful rummaging in the trash bin?

            1. Did your sister divorce you yet? I heard she wanted to trade up to a cousin. Still got that leak in the roof of the single-wide there in the trailer park? I hope you learned your lesson about indoor target practice. Speaking of that, when does the ankle monitor come off? Did that kid that was wounded ever recover? It must suck for you to be called a school shooter just because the little rugrat was being home-schooled when you were engaging in moonshine-fueled First Person Shooter with live ammo. Oh, yeah, that reminds me. I heard you were switching from moonshine to meth because ‘shine was giving you diarrhea. Later, dude. Peace be with you.

  4. “Would raising the federal minimum wage to $15 an hour cost jobs?”

    More importantly for us Koch / Reason libertarians — would it reduce the profits of billionaires like our benefactor Charles Koch? Unfortunately the answer seems to be “Yes!”

    #AbolishTheMinimumWage
    #InDefenseOfBillionaires

    1. I mean, it’s not a zero-sum game, so….

    2. Don’t worry. Any dollar grudgingly given to workers wends its way through the economy and back into Koch pockets, so billionaire profits are not at risk.

  5. Keep in mind that a “living wage” is going to set the baseline for a universal basic income. And a universal basic income is not going to replace our existing welfare programs, it’s going to augment them. Soon enough, we’ll all enjoy an above-average income as a human right.

    1. At Lake Wobegon all incomes are above average

  6. “Zero is a perfectly reasonable estimate of the impact of minimum wage on employment,”

    Wrong, but perfectly reasonable. Sort of like certain mostly peaceful protests.

    1. If by “reasonable”, you mean you’d have to be insane or dishonest to push it.

  7. So it turns out economists are conveniently flexible? Who woulda thunk?

  8. Dear USA citizens — The Nazi (def; National Socialist) regime needs to stick their almighty PRICE-TAG ON YOUR FOREHEAD! because you don’t own you; The [WE] mob owns you…

  9. There’s an inherent conflict between the progressive narrative on the minimum wage and the progressive narrative on illegal immigration. The fact is that as they artificially make legal labor more expensive with the minimum wage, they also attract more illegal labor into the economy.

    They can choose to crack down on illegal immigration to defend the jobs of people making the minimum wage, or they can undermine the jobs of minimum wage earners by letting illegal labor into the country and keeping them here. What they can’t do is escape the contradiction. OTBE, illegal labor is a substitute for legal labor after a minimum wage increase–whether they admit it or not.

    1. Actually, it’s perfect. It allows the documented wage to be $15 while the illegals fill the gap between robots and legals.

      And then you give stimulus checks to anyone who falls through the gaps.

      1. I think their real motivation is just to do this because of the unions, and that means looking at the motivation of the unions.

        The unions also support a higher minimum wage and also aren’t opposed to illegal immigration. Having both means that if you’re an unskilled worker and you want to make a decent living, you need to join a union.

        The number of opportunities for unskilled labor to be employed drops as the minimum wage increases diminishes because unskilled labor gets priced out of the market at the higher wage. Simultaneously, the number of unskilled job opportunities diminishes as illegal labor floods in to fill those under the table jobs.

        That means if you want to make a decent wage and have some kind of job security, then as an unskilled worker, you should probably join a union. It makes people more likely to want to join a union, and it makes people more likely to want to organize into a union.

        1. There is another big reason that unions support minimum wage increases. It is because it pushes up the floor under their union wages. If the minimum wage increases to $15/hour then unions will start demanding a comparable wage increase for their union jobs, especially any that are close to that $15/hour minimum wage.

          1. An an increase union dues.

  10. Would raising the federal minimum wage to $15 an hour cost jobs?

    Not for robots. At least until they gain sentience and unionize.

    1. I expect the unemployed SEIU members to become Neo-Luddites and start throwing wooden shoes into the gears of automation.

      My guess, is steep taxes on robots to pay for the SEIU member welfare.

    2. “Not for robots. At least until they gain sentience and unionize.”

      That would be nice, but I am still waiting for most Democrats to gain sentience. Which group will be first to reach it?

    3. #SiliconLivesMatter? No. No, too soon.

      1. ++

  11. Well, if you’re going to triple the money supply, then no, raising the minimum wage 50% doesn’t matter.

  12. Yes an now.

    Keynes had the concept of “sticky wages”. Employers had giving out pay cuts, so they tend not to. So the wages tend to be sticky in the downward direction despite all the simplistic macro numbers (which Keynes did not invent) predicting they would.

    Unemployment is much the same. Contrary to Lizzie Warren, employers don’t like laying off people. So a minimum wage hike tends not to cause unemployment in the short term. You can see this with past minimum wage hikes. Costs got passed on to consumers rather than workers. On the other hand, past minimum wage hikes were much smaller, and tended to follow real low end wages. This new hike is big and not in line with current market wages.

    So my prediction is that we’ll see a smallish tick in employment, because not every state and county has the economy to absorb such a huge hit. But we will see big price hits as the costs get shifted to the consumers.

    In the long run we will see full time jobs replaced by multiple part time jobs, and we will see more automation. We’re already seeing the latter, and we will see it accelerate. The automation is inevitable, but that doesn’t mean we need policies to hasten it along. And the final problem is that we will be creating a permanent unemployable class. And to scare the bejeebus out of you conservatives, we’ll see more under-the-table employment of “illegal” workers. People smuggle to avoid cigarette taxes and alcohol taxes, who think there won’t be labor smuggling to avoid minimum wages?

    1. Your comment is exactly what should have been in the article and wasn’t. Roughly – WHY are people believing/asserting that min wage doesn’t cost jobs even ‘contrary to considerable evidence’ that that change does cost jobs. A belief that is maintained contrary to considerable evidence is – a superstition. Suderman doesn’t apply that pejorative directly in this article but indirectly that is exactly what he is doing. Nor does the article shed any light. Just indirect heat.

      So it all just perpetuated the useless. On the one side, the ‘considerable evidence’ – aka statement of the obvious or ‘consensus assumption’ – that min wage will cost jobs. On the other hand, a different assumption – based (or marketed) apparently on nothing at all. And I guess this is what is supposed to constitute public discussion.

    2. You’re mistaken about the costs being passed on.

      By the time a minimum wage hike hits, businesses have already reconfigured for it.

      What people don’t look at are the layoffs and shuffling of labor around in the year or two that precedes a wage hike.

      Or, as is happening in AZ, over many years as a wage hike is phased in bit by bit.

      1. I wonder how many people end up leaving the work force altogether. They would no longer be counted in the unemployment statistics, which would distort the analysis.

    3. I don’t have the link handy, but there was a Reason article last year (iirc) about the minimum wage hike in seattle, and the business response to it. The immediate effect wasn’t letting people go, it was cutting their hours. Then, as workers left their jobs, there weren’t new hires, but the remaining workers simply had their hours increased. Less labor hours, not immediate firing. But that means a lot of workers were making less with a higher minimum wage because they weren’t working as many hours, and it ultimately meant lower total employment in the long term, which is ‘lost jobs’ in a sense.

  13. Sanctuary States for wages. Teenagers can still work in MS, AL, AR, TX, TN, AZ, FL, MT, WY, UT, ID, SD, MO

    1. Much to my surprise, Florida voters said “yes” to a $15 minimum wage. It’s now at $8.65 and will go up each year until hitting $15 in 2026. I have a client that operates several McDonald’s restaurants in Florida. She told me she has been using a $9.25 minimum for a few years. The future $15 rate will cause some challenges for her and she has not got it all figured out yet. One thing is certain – menu prices will increase. At least that’s what she said when I asked her.

      1. McDonald’s in really economically depressed areas will be shutting down when this hits.

  14. Or, maybe, you could ask any real* (read: Austrian) Economist and they can just tell you of course price floors reduce the quantity demanded, and of course it will reduce employment. There is literally zero logical argument to be made otherwise.

    *The word “economize” means to wisely use scarce resources. Mainstream “Economists” are taught to ignore cost. You cannot recognize scarcity if you ignore cost. Ergo, mainstream “Economists” aren’t, in any proper usage of the term “Economists”, because they don’t have the tools necessary to economize.

    1. I am glad you believe that economics is about scarcity. That is NOT what Austrian school actually believes and you hint at that. The only possible scarcity is in the real world not in the world of logical arguments. Yet Austrian school reject real world (empiricism) in favor of well-constructed logical arguments (rationalism). Which is a big reason why it is never right and never refuted either.

      I don’t understand why libertarians are so enamored of Austrian school. Though I definitely can understand why those enamored of Austrian school rather prefer a political party that never intends to accomplish anything in the real world (outside of some mental construct found in the hinterlands of Somalia).

    2. There can theoretically be instances where a rising price results in increasing the quantity demanded. These are so-called Giffen goods. But it’s an exceedingly rare phenomenon. And there’s no reason to believe it applies to wages.

  15. The same reason Amazon and Google and Apple claim they want to have higher corporate taxes. Those that can afford it can price their competitors out.

    Hawley is right to break up these trillion dollar monstrous tech companies.

  16. free association means if I want to pay someone $3.00 hourly to work and he accepts then fuck you federal government.

  17. Raising the federal minimum wage to $15 an hour would more than double it.

    And not a single unaccountable expert can be bothered to include in their predictions what will happen to everyone making more than the current minimum but less than $15 an hour today. Apparently those workers will all be so excited to be bumped to $15 an hour they will not mind the 16 year old who started yesterday makes the same wage they do.

    Nope, no inflation, automation and job losses on the horizon.

    1. This is a weird argument to me. Not too long ago I moved into a different position and made about 50% more than I had previously been making. Not long after, someone younger and less experienced got hired into a similar position. I think they even were making a shade more than me. Why would I be more made about someone else making good money than happy I was making more money? Would anyone actually give up a 50% raise even if they could leverage that to screw over a less experienced person even more?

      1. This is a weird argument to me.

        Then you do not understand the argument. The subject is minimum wage, which is not a factor in your situation. That the individual in your example is compensated more than you means your employers considers you less valuable, even with your additional years and experience. There is nothing that says a new hire is by definition a minimum wage hire.

        Would anyone actually give up a 50% raise even if they could leverage that to screw over a less experienced person even more?

        No. They would stop doing the things that gave them the relatively higher wage such as working more flexible hours, weekends and evenings and taking greater responsibilities and risks. As I said, you do not understand the point. At all.

  18. Something that doesn’t seem to be mentioned enough: the breakthroughs in tech that make lower income earners expendable. Self-checkout, ordering kiosks, etc., are becoming more common. If you think a $15/hr wage won’t prompt McDonald’s to increase the number of ordering kiosks in its stores in the U.S., you haven’t been to a McDonald’s in Paris!

    1. Not just McDonald’s. Think about trucking if they start producing automated trucks. It sounds like a great idea, but what do they plan to do with all of those truck drivers?

      1. Why should we be protectionist in labor markets when we reject protectionism in trade markets? (assuming you’re libertarian)

      2. Have you heard of Soylent Green?

  19. Suderman never reveals the real reason economists learned to love minimum wage hikes. They found out big money and fame are available to economists who spend their credibility supporting left wing political gamesmanship. It’s no coincidence this evolution began shortly after Krugman transformed from a economist to a political hack.

    1. I call them “Rent an Economist”…haha

  20. Predictably, people are retreating to their ideological corners rather than trying to inform themselves on what the data says. Historically, minimum wage changes have not been shown to have a meaningful impact on unemployment (meta analyses of studies show a tight grouping around zero for studies with the best P values).

    As far as percent change, the minimum wage tripled in its first 12 years, so by percent change it doesn’t seem too far out of historical scope. As far as target rate, it would likely take us a bit above the historical high water mark for inflation adjusted minimum wage if implemented as proposed, and put us among the highest minimum wages world wide.

    Now it could be argued that the the combination of a fairly rapid transition in addition to the final target rate could produce an elasticity that we have not seen in historical or international examples of either in isolation, but that brings in a different problem: If sudden changes can be disruptive, why have we not indexed the minimum wage yet?

    I can understand the ideological argument against the minimum wage, but one should not try to couch an ideological argument as an argument of practicality.

    1. If local market demand for entry level labor is higher than the legal minimum wage your right but a national min wage will ensure the wages in some locations are above marginal return..and if a recession occurs can the min wage fall?

      I honestly think keynsian economics rots brains…use common sense not some BS “meta analysis”..with macroeconomics the data is always ratty, dated, can’t isolate or control variables…

      Its 2021 and critical thinking seems to have left the country.

      1. I’m a bit confused by your statement about “BS meta analysis”

        I would assume that looking at what happens in the real world would be better than ivory tower theoretical predictions. It stands to reasons that looking at bunches of real world studies would be better than looking at just one. So why would looking at bunches of real world studies in an organized way (a meta analysis) be “BS”? What should we be looking at instead of real world data?

  21. There would be no job losses. There would be a lot more money flowing as these low income workers spend everything they make. This would also cut welfare rolls and increase the tax base. Those employers that pay such low wages should be made to pay for the welfare benefits their employees receive.

    1. …”made to pay” = “MAKE THEM PAY me what I think I’m worth instead of what my production is really worth.”

      Bottom line – over and over and over again; Use Gov-Guns and STEAL from those people! The crockery of the lefty criminal mind.

      1. That’s always what it comes down to for these people. Forcing others to submit to their ideological fantasies.

  22. Any “economist” who believes this is an idiot. Furman in particular seems to not understand opportunity costs…

    Ask any small business owner..if the hire has a negative marginal return they don’t hire the person….but it does facilitate time preference for capital investment…robots…keep it up wokes..keep it up.
    Oh and if we have a recession and prices fall..the min wage can fall too right? ha ha ha

  23. When the government raises the cost of unskilled labor, it reduces the demand for unskilled labor.

  24. Progressives don’t care about whether something has long term repercussions, they just care that it feels good right now.

  25. So, economists learned to not loath the minimum wage because they realized that the model of perfect competition that was assumed up until the early 2000s was not a good description of labour markets, especially labour markets in which any minimum wage would actually bind. Remember, one of the predictions of a perfectly competitive labour market is that if an employer lowered wages by one cent, all their employers would leave immediately. This doesn’t happen. Thus, the primary model by which we conclude that minimum wages decrease employment is falsified.

    Over the last 30 years economists have accumulated plenty of evidence that in labour markets employers have non-negligible market power. When employers have non-negligible market power, they will pay a wage lower than marginal revenue product and employ fewer workers than they would if the wage was equal to marginal revenue product. In partial equilibrium models, it is easy to show that minimum wages can actually increase employment. This is not new, nor should it be a surprise. However, minimum wages affect an entire economy. So, the appropriate model would be a general equilibrium (GE) model. When we use a GE model with search frictions and employer market power, theory does not have an un-ambiguous prediction about what a minimum wage will do to employment levels. It turns out it depends on a number of parameters, among these is the level of market power, the wage dispersion, the spillover effects of the minimum wage (how the minimum wage effects wages that are safely above it).

    Finally, econometricians have realized that many of the models that estimated the effect of minimum wage effects are irreparably biased if employer market power is not taken into account. Thus, lots of the empirical evidence that support the claim that minimum wages decrease employment are suspect because they implicitly assume that labour markets are perfectly competitive. In particular, the CBO still uses estimates that suffer from these defects, despite paying lip service to the work that labour economists have done over the last 20 years on the market organization in labour markets.

    It is not that economists love the minimum wage, almost all labour economists still think a wage subsidy is a much better policy tool than a minimum wage, but economists have learned that labour markets are much more complicated than we previously thoughts.

  26. “High quality academic scholarship confirms that modest increases in the minimum wage have not led to detectable job losses,” it said.

    That is true by definition. Modest increases in cyanide intake have not led to detectable health declines — for sufficiently low values of “modest” and sufficiently crude means of “detection”.

    Dosis sola facit venenum., only the dose makes the poison.

    A 20% increase in the minimum wage of a large city did not create detectable job losses in one study, and that is the sole intellectual foundation for a 100% increase in the minimum wage nationwide? Madness.

  27. What if doubling the minimum wage really doesn’t lead to any job losses, but to 100% inflation instead?

  28. the number of people working with minimum wage should be less. https://vizyonpara.com/

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