Advocacy replaces scholarship in minimum wage debate
Author: Michael Saltsman
Publication Date: July 2012
Newspaper: The Hill
Topics: Minimum Wage
Determined to see President Obama make good on a campaign pledge to raise the federal minimum wage to $9.50, four Congressmen have introduced bills to make this promise a reality. (A number of states have considered similar bills this year.)
Advocates for a higher minimum wage—most notably, the National Employment Law Project (NELP), the Economic Policy Institute (EPI), and the Center for American Progress Action Fund (CAP)—have swooped in to provide support for the notion that a higher minimum wage makes perfect economic sense.
This isn’t a new tactic—appeals to evidence are a hallmark of any policy debate, especially on this topic. What’s unique about the current situation is the degree to which wage hike advocates are stretching the truth to make it fit their narrative.
For years, the minimum wage was a settled matter among economists. By raising the cost to hire and train entry-level employees, minimum wage hikes force employers to either raise prices or cut costs elsewhere. Faced with cost-conscious customers, employers figure out how to do more with less, which translates to fewer hours of work and fewer jobs for less-skilled employees. It’s economics 101.
The debate changed in the early 1990s, when a series of studies—including a well-known study of employment in the fast food industry in New Jersey—cast doubt on the old consensus. This new generation of research suggested that raising the minimum wage had no effect on jobs, and could even increase employment. It didn’t take long for this heterodox conclusion to influence political rhetoric: President Bill Clinton used this study to argue that a “modest” increase in the minimum wage wouldn’t reduce employment.
Yet the credibility of the New Jersey study was short-lived. A closer examination of the study’s data revealed serious reporting errors and implausible swings in prices and employment. A later paper published in the same economics journal as the original New Jersey study (and based on more accurate payroll data) found that restaurant employment did indeed fall after the minimum wage increase.
Since then, the evidence has continued to stack up against raising the minimum wage. Eighty-five percent of the most credible studies on the minimum wage over the last two decades have affirmed the original consensus that raising it reduces employment. As a result, proponents have increasingly relied on misleading rhetoric to make their case.
For instance, NELP claims that “two decades of rigorous economic research” prove that no employment loss occurs following a wage hike, omitting the key detail that the vast majority of research published over this time period refutes their viewpoint. (To wit: You could publish two studies between 1990 and 2010 and still have “two decades of rigorous economic research” to your name.)
Or consider EPI, which assembled a list of hundreds of economists in support of an increase in the minimum wage. Suspiciously, the list omitted the economists’ specialties. A closer analysis found that over half of the signers weren’t labor economists at all, instead specializing in topics like gender economics and agricultural economics. (Others lacked a PhD altogether.)
And then there’s CAP, which argues that the minimum wage would be over $10 an hour today had it kept pace with inflation since 1968. But they’re cherry-picking their baseline—if the minimum wage had kept up with inflation since its inception in 1938, it would only be about $4 today.