New Study Reveals Faulty Methodology Behind Minimum Wage Research
Job loss following minimum wage hikes is economic reality
Publication Date: May 2006
Topics: Minimum Wage
Washington, DC–The recent study by Policy Matters Ohio claiming that minimum wage hikes do not lead to declines in small business employment relies on fantastically faulty methodology, according to research released today by the Employment Policies Institute.
University of Georgia economist, Joseph J. Sabia, analyzed the methodology of the Fiscal Policies Institute—the same methodology the Policy Matters Ohio study relies on—and concluded that the research failed to stand up to more rigorous economic scrutiny.
“There are important theoretical and methodological problems with the report that cast doubt on the conclusion that minimum wage hikes have no adverse effects on retail and small business employment,” said Sabia.
Not only does the study fail to take into account socioeconomic and demographic trends, but the limited time period analyzed, insufficient outcomes examined, and faulty assumptions made— among other flaws—create a misleading interpretation of the effects of minimum wage hikes.
The study by Sabia presents a more rigorous and methodologically appropriate analysis of state-level minimum wage increases. Dr. Sabia’s research reconfirms the time-tested economic consensus that these hikes lead to job loss for low-skilled employees. Specifically, a 10 percent increase in the minimum wage is associated with:
• a 0.9 to 1.1 percent decline in retail employment,
• a 0.8 to 1.2 percent reduction in small business employment,
• a 4.6 to 9.0 percent decline in teenage employment in small businesses, and
• a 4.8 to 8.8 percent reduction in hours worked by teens in the retail sector.
“The findings of this study should serve as a caution to legislators considering an increase in the minimum wage,” said Dr. Sabia. “While the findings of the FPI study may be seductive to some policymakers, the evidence presented here should serve as a reminder that there is no such thing as a free lunch.”
To receive a copy of “The Effects of Minimum Wage Increases on Retail and Small Business Employment” by Dr. Joseph J. Sabia contact the Employment Policies Institute at 202/463-7650