The ‘Living Wage’ Lie
Author: Michael Saltsman
Publication Date: November 2010
Newspaper: New York Post
Topics: Living Wage
There is broad agreement among economists that raising the minimum wage forces businesses to cut jobs and roll back the hours of their low-skilled workforce. Only a handful of studies suggest otherwise — but politicians and activists who support a “living wage” mandate in New York City are sure to promote such research as the final word in the debate.
Noted labor economists David Neumark and William Wascher surveyed two decades of the best studies on the subject, and found that only 15 percent of them supported the minority view. Now comes one more: New research in this month’s Review of Economics and Statistics from economists Arindrajit Dube, T. William Lester and Michael Reich claims to find that minimum-wage hikes don’t cost jobs.
Before it was even published, a spokesman for an advocacy group called the National Employment Law Project (NELP) referred to it as a “refutation” of years of prior research. But a mountain of evidence to the contrary suggests that the laws of economics are not so easily overturned.
Economists’ core argument against a higher minimum wage is a simple one: When the government (be it city, state or federal) makes it more expensive to hire and train less-skilled employees like teenagers, employers figure out how to make do with fewer (or different) people.
If you’ve bought groceries recently, you’ve seen this principle in action. Store owners have responded to recent minimum-wage hikes by “teaching” customers to bag their own groceries and use self-checkout lanes — so the store can keep five or six fewer employees on the floor at any given time.
This has been disastrous for the job prospects of America’s teens. William Even and David Macpherson, who’ve spent much of their academic careers studying the consequences of wage mandates, found that 114,400 fewer young adults were employed as a direct result of the 40 percent increase in the federal minimum wage between July 2007 and July 2009.
That finding is consistent with the vast majority of minimum-wage research dating back to the 1940s. And the few notable exceptions don’t always hold up.
In 1994, economists David Card and Alan Krueger shocked the academic world with their claim that earlier increases in New Jersey’s minimum-wage hike had actually increased food-industry employment relative to neighboring Pennsylvania.
Yet later research showed that Card and Krueger relied on seriously flawed telephone surveys for their original study. When it was redone using accurate payroll data, the results flipped — research published in the same prestigious journal as the original study showed that jobs were in fact lost following Jersey’s minimum-wage hike.
Even though it was proven false, you still hear agenda-driven activists cite the flawed Card/Krueger study to keep alive the notion that raising the minimum wage either increases (or doesn’t reduce) employment. In New York, groups like NELP demonstrated their desperation by trying to discredit an unbiased evaluation of the proposed “living wage” mandate — before that study was even released.
Putting exaggerated rhetoric aside, here’s what New Yorkers should remember: Economic consensus isn’t built overnight. Current thinking on the minimum wage is the product of thousands of pages of careful, peer-reviewed research, which clearly indicate negative employment effects following a minimum-wage hike.
Policymakers can’t afford to get this question wrong. Economists Richard Burkhauser and Joseph Sabia found that New York’s earlier minimum-wage hike decreased employment for less-educated 16- to 29-year-olds by more than 20 percent.
With today’s shaky economy, this is no time to ignore decades of research for a single outlier that tells activists what they want to hear.
Michael Saltsman is the research fellow at the Employment Policies Institute, a research nonprofit dedi cated to studying public-policy issues surrounding entry-level employment.