Ignoring the Obvious in the Minimum Wage Debate
Author: Michael Saltsman
Publication Date: June 2013
Newspaper: The Hill
Topics: Minimum Wage
It’s an article of faith on the progressive left that mandating new labor costs for employers has no negative impact on the people they employ. Like the handful of people who still believe the universe revolves around the earth, these bitter-enders cling to a handful of outlying studies and ignore the evidence piling up around them. Case in point: A recent op-ed on these pages by Jack Temple of the labor union-backed National Employment Law Project. Temple argues that the 40 percent increase in the federal minimum wage between 2007 and 2009 is in no way responsible for teens’ current employment woes, and that another 39 percent increase in the minimum would be equally harmless.
Not only is Temple’s argument wildly at odds with the academic evidence, but the testimonials of actual business owners demonstrate how hollow his claims are.
Start with the academic evidence on the consequences of raising the minimum wage, which has been accumulating since at least the late 1940s. In 1977, Congress established the Minimum Wage Study Commission to determine the impact of the policy on employment. In a seven-volume report released four years later, the Commission reported that each 10 percent minimum wage increase reduced employment among young adults by one to three percent.
A handful of outlying studies have attempted to challenge that consensus in the years since, including the now-infamous 1994 examination of New Jersey and Pennsylvania fast food restaurants that was later refuted in the same academic journal that originally published it. But in a comprehensive review published 30 years after Congress’s commission was formed, economists David Neumark (UC-Irvine) and William Wascher (Federal Reserve Board) reported that almost all of the most credible studies on the subject still showed job loss for teens following a wage hike.
Still, progressive economists have forged ahead, undaunted by the facts. Today, Temple and his financial backers at the country’s labor unions are far more brazen in their approach, criticizing the academic consensus directly. They think they’ve found their smoking gun, thanks to a series of recent studies by a team of researchers affiliated with UC-Berkeley—one of whom (Michael Reich) is a founder of the far-left Union for Radical Political Economics, and another of whom (Arin Dube) was a key player in the Harvard Living Wage Campaign.
Unfortunately for their thesis, however, a National Bureau of Economic Research paper co-authored by UC-Irvine’s Neumark (along with J.M. Ian Salas and William Wascher) documents in painstaking detail the flaws in their work. They are unequivocal in their conclusion that “neither the conclusions of these studies nor the methods they use are supported by the data.”
Setting aside the academic debate, it’s important to remember that the data in economic studies on the minimum wage is ultimately based on the real-life experiences of employers—employers who haven’t been silent about the effects of a higher minimum wage on their business and employees. Quotes from these employers are available in many of the country’s major newspapers and tell a depressing story of the unintended consequences of federal and state wage hikes—lost jobs and fewer hours, to name a couple.
Here are just a few. “I went from hiring 20 young people during the summer to hiring none,” said one restaurant owner in the Salem Statesman Journal. Another business owner told the San Francisco Chronicle that a wage hike had forced an increase in prices, which in turn reduced sales and forced them to scale back on employees and health benefits. Most recently in Albuquerque, headlines like “Minimum wage increase causes restaurant cut-backs” and “Homeless shelter hurt by minimum hike” appeared after that city raised its minimum wage.
There are dozens of additional examples for wage hike proponents to read. I won’t hold my breath, though; their efforts have always been more about ideology than academic progress. As one researcher involved in the aforementioned studies admitted at a private meeting of liberal groups, this research was to “help to pave the way” in the “fight” for wage hikes.
In a nutshell, it’s a fight between evidence and ideology. For the sake of young people who stand to lose job opportunities, let’s hope the evidence wins out.
Michael Saltsman is the research director at the Employment Policies Institute.