Be Skeptical of Studies that Say Minimum Wage Hikes Are Painless

Do economists downplay the negative findings in their research on the minimum wage? That’s the implication of a new working paper on the issue for the National Bureau of Economic Research titled “Myth or Measurement?”

Studies of raising the minimum wage often give the impression that “the evidence may be roughly 50-50 as to whether research finds negative employment effects,” note the paper’s authors, University of California, Irvine Economics Professor David Neumark and Peter Shirley, director of the West Virginia legislature’s Joint Committee on Government and Finance. Their own examination of the studies’ underlying data, however, found that that supposed ambiguity just isn’t there.

“[C]oncluding that the body of research evidence fails to find disemployment effects of minimum wages requires discarding or ignoring most of the evidence,” they find.

The study comes along as the new Biden administration has proposed more than doubling the federal minimum wage to $15 an hour, up from $7.25, and Congressional Democrats have introduced a bill to raise it to that level in just five years. Meanwhile, the most recent Labor Department unemployment numbers have shown that the economy is starting to shed jobs again, threatening months of progress toward returning employment to pre-COVID-19 outbreak levels.

The nonpartisan Congressional Budget Office said in a 2019 study that raising the federal minimum wage to $15 an hour would likely cause 1.3 million people to lose their jobs. This would erase the overall benefits of the higher wage, with family income falling by $9 billion or about 0.1 percent, adjusted for inflation.

Supporters of raising the minimum wage generally ignore any argument that there are economic tradeoffs, portraying it as purely beneficial. “Democrats are asking for $15 an hour, because no one working 40 hours a week should be making $15,000 a year,” said Senate Health, Education, Labor and Pensions Committee Chairwoman Patty Murray of Washington in a statement Wednesday, along with other Democrats touting their legislation.

The statement by Murray and other Democrats linked to a study by the pro-union Economic Policy Institute that claimed, “High-quality academic scholarship confirms that modest increases in the minimum wage have not led to detectable job losses.”

Neumark and Shirley argue that the minimum wage studies that purport to show no impact reach that conclusion by doing things like factoring in the impact on people working in a specific industry. However, in those cases, wages are typically already high, so employers are less likely to be forced to pay their workers more to match the new minimum.  “[T]his may be the evidence that is least relevant to the question of whether some low-skilled workers lose their jobs when the minimum wage increases,” they note. By contrast, the evidence is “much clearer” that low-skilled workers face losses when the minimum wage is hiked. In short, giving much weight to impact of a higher minimum wage on higher earners is like doing a study of the impact of rising flood waters and including only the people who live at the highest elevation. 

Reasonable people can look at the evidence and reach different conclusions, Neumark and Shirley concede. They add that if those people are academics or economists, then they need to explain why the contrary evidence can be discounted.

“[O]ur analysis shows clearly that most of the evidence indicates the opposite—that minimum wages reduce low-skilled employment. It is incumbent on anyone arguing that research supports the opposite conclusion to explain why most of the studies are wrong,” they conclude.