The Effect of the Minimum Wage on Employment
Until a controversial study in 1993, most economists argued that a minimum wage, in and of itself, reduced employment and that increases in the minimum wage further reduced employment. In 1992, two Princeton economists and a Harvard economist studied fast food restaurant employment and then wrote a 1993 paper purporting to show that the minimum wage had little if any effect on employment one way or the other. Some economists criticized this paper on several grounds. Other economists defended it equally. Later studies have partially confirmed the 1993 study while presenting more nuanced views. As of Spring 2010, there is no consensus view of this controversial matter.
Other People Are Reading
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The Controversial Card, Katz and Krueger Study
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In a controversial and influential 1993 study for the National Bureau of Economic Research titled "An Evaluation of Recent Evidence on the Employment Effects of Minimum and Subminimum Wages," economists David Card, Lawrence Katz and Alan Krueger re-examined "evidence on the employment effect of the minimum wage," and concluded that earlier studies were definitionally and procedurally mistaken. They re-analyzed other data and concluded that on the basis of several cross-state studies, the minimum wage "had no adverse employment effect."
Traditional Arguments Supporting Negative Employment Effect of a Minimum Wage
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In 1995 House Republican members of the Joint Economic Committee responded with a summary, "Talking Points," of all the arguments against the Card, Katz and Krueger study. The subtitle explains the content: "50 Years of Research on the Minimum Wage." The paper then presented one-sentence summaries of the effects, almost entirely negative, with multiple citations of confirming academic articles, among them "The minimum wage reduces employment," "The minimum wage hurts the unskilled" (and) "low-wage workers," and "The minimum wage hurts small businesses generally."
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Further Disagreement
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The responses on both sides of the question following the Republican refutation of the Card, Katz, Krueger study have been heated. A 1999 University of Vermont study characterized the sources cited in the Republican study as "opinion-editorial," rather than actual "peer-reviewed" research, but still concluded that "an increase in the minimum wage (of 10%) results in a small (1%) decrease in employment."
The Zaretsky Article
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In 1994 Adam Zaretsky published an article, "Are Minimum Wages Intrusive?" in The Regional Economist, a publication of the Federal Reserve Bank of St. Louis. If you have an interest in the subject, the bibliography attached to the article is a good place to look for further reading; it cites all the important articles, both peer-reviewed and journalistic. Zaretsky's conclusions reflect neutral economic opinion: sometimes a minimum wage increases unemployment, sometimes not. He cites other interesting anomalies in the research beyond the scope of this article.
Conclusions and Continuing Controversies
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As of Spring 2010, conservative and liberal journalists and politicians still assert that a minimum wage reduces employment or, on the other hand, that it has no effect at all. Many of these arguments come from lobbying groups with a "research" arm with an academic name, so understanding what is actually research and what is advocacy can be difficult. However, a body of field researched peer-reviewed studies, some government-funded, suggests more nuanced conclusions congruent with Zaretsky's in 1994: minimum wages often, not always, raise unemployment slightly, about 1% per 10% increase in the minimum wage; some, not all, states with higher than federal minimum wage laws have higher employment than states with federal minimums only. But, as Zaretsky concluded: "Further inquiries will no doubt be made before the matter is settled."
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References
- IDEAS: Evaluation of Recent Evidence on the Employment Effects of Minimum...Wages (Abstract)
- House,gov.: Talking Points: 50 Years of Research on the Minimum Wage
- Univ. of Vermont: The Effects of Increases in the Minimum Wage
- Journal of Labor Research: Effects of Minimum Wages on Youth Employment... (Abstract)
- GoogleDocs: "Are Minimum Wages Intrusive?"; Adam Zaretsky; 1994
Resources
- Photo Credit fast food reflect image by Nicemonkey from Fotolia.com
