Commentary | Wages, Incomes, and Wealth

Economic research supports raising the minimum wage

This piece originally appeared in The Hill’s Congress Blog

Michael Saltsman has trouble with his facts from the very first sentence of his op-ed on the minimum wage. Saltsman asserts that President Obama made a campaign pledge to raise the minimum wage to $9.50 an hour and that four members of Congress have “introduced bills to make this promise a reality.” In fact, President Obama argued for raising the minimum wage to $9.50 last year, and there is only one bill in the House that would set a similar figure: H.R. 5727 (and it would raise it to $9.80 by 2014, not $9.50). Sen. Tom Harkin’s Rebuild America Act would also raise the minimum wage to $9.80 in 2014. But facts just get in Saltsman’s way.

Saltsman’s economics are no better than his legislative research. The old Economics 101 textbook theory he recites – that a higher minimum wage will necessarily reduce employment – was not supported by empirical research. As a 1995 paper in the Journal of Economics Literature put it, “There is a long history of empirical studies attempting to pin down the effects of minimum wages, with limited success.” No one found significant employment losses when President Truman raised the minimum wage by 87% in 1950. When Congress raised the minimum wage by 28% in two steps in 1967, businesses predicted large employment losses and price increases. As the Wall Street Journal reported six months later, “Employment and prices show little effect from $1.40-an-hour guarantee.”  Empirical studies even before Card and Krueger’s landmark New Jersey study found no increase in the unemployment rate for teens and young adults from a 10% rise in the minimum wage, while it was clear that higher wages were bringing housewives into the workforce.

Saltsman wants readers to believe that economists have discredited Card and Krueger’s finding that a 19% increase in New Jersey’s minimum wage did not cause job loss. He’s just wrong. Nobel laureate Paul Krugman says the study “has stood up very well to repeated challenges, and new cases confirming its results keep coming in.” And even the most ardent conservative critics could not claim that the New Jersey increase caused statistically significant job loss. Furthermore, a groundbreaking peer-reviewed 2008 paper (that Saltsman chooses to ignore),“Minimum wage effects across state borders: Estimates using contiguous counties,” generalizes the landmark Card and Krueger study to all contiguous county-pairs in the US that straddle a border, finding no adverse employment effects of increases in the minimum wage.

University of California, Berkeley (and former Economic Policy Institute) economist Sylvia Allegretto wants policy advocates to know about recent economics research about the minimum wage because it is so clear and convincing. Allegretto and colleagues Michael Reich and Arindrajit Dube carefully studied data on teen employment from 1990 to 2009 and found “that minimum wage increases—in the range that have been implemented in the United States—do not reduce employment among teens.” Previous studies to the contrary used flawed statistical controls and “do not provide a credible guide for public policy.”

The fact that more than 550 economists signed a statement calling for an increase in the minimum wage in 2007 cannot be dismissed because they were not all “labor economists.” No one claimed they were, and it’s irrelevant: agricultural economists and macroeconomists understand, just as labor economists do, that when reality doesn’t fit a model, it’s the model that has to change.

Saltsman has a loose regard for facts, but the fact is that economists no longer unthinkingly accept a nineteenth-century model that doesn’t fit the data, which show that modest minimum wage increases of the kind we have enacted in the past do not cause job loss.

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