Myths/raising the minimum wage hurts jobs

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Myth: Raising the minimum wage will result in higher unemployment rates.
Billionaire Nick Hanauer was one of the original investors in Amazon.com.

Myth

There is a widespread belief that raising the minimum wage leads to loss of jobs and higher unemployment. (A more extreme version also holds that eliminating the minimum wage completely would lead to more employment.)

Examples

  • The San Francisco claim: San Francisco suffered job losses after citizens approved a ballot proposal to raise the city’s minimum wage to $15 an hour by 2018.
  • The Boehner argument: "When you raise the price of employment, guess what happens? You get less of it. Why would we want to make it harder for small employers to hire people?" — John Boehner

Reality

There are (at least) two parts to the reality of this myth:

  • It misses the point.
  • It's not even true.

Missing the Point

The point of employment as a social institution is twofold:

  • to keep society operating, i.e. provide all the goods and services necessary for everyone to live at an acceptable level
  • to distribute those goods and services in a reasonably equitable way

When a worker's wages fall below the level necessary to provide them with a reasonable living, then this arrangement fails on both counts.

Not Even True

The most pessimistic credible study I could find comes from the Congressional Budget Office, which concluded in February 2014 that increasing the minimum wage would have two primary effects on low-wage workers:

  1. most would receive higher pay, which would elevate some of them above the poverty level
  2. some jobs would probably be eliminated

It should be noted that the minimum wage, which (as of 2014) has not been raised or even adjusted for inflation since 2007, is not adequate to keep most workers out of poverty. They therefore rely either on government assistance or on working multiple jobs, which is unhealthy for the worker, increases strain on families, and decreases the job supply.

In other words, a job that doesn't pay enough to live on isn't really worth having.

More significantly, it appears that the CBO model may be too pessimistic:

  • San Jose raised their minimum wage in 2013, resulting in a decrease in unemployment and many other benefits to the local economy.
  • Washington state, which has the highest state-mandated minimum wage, also has the lowest unemployment.[1]
  • The US Department of Labor says that "A review of 64 studies on minimum wage increases found no discernable effect on employment. Additionally, more than 600 economists, seven of them Nobel Prize winners in economics, have signed onto a letter in support of raising the minimum wage to $10.10 by 2016."
  • A comparative study of states that raised their minimum wages to be higher than that of their neighbors found no movement of jobs from the former to the latter

Summary

While there is plenty of debate on this subject, all the real evidence supports one side of it: raising the minimum wage doesn't have any clear effect on the employment rate[2] and in some cases may even increase employment[3].

Related

There is a claim that the Card-Krueger study – which claimed to show an increase in employment after a minimum wage hike – was actually poorly conducted because it relied on employers' verbal statements rather than actually checking the employment records. "payroll records did not corroborate the verbal assertions made by employers."[4] Whether or not that is true, however, a follow-up study confirmed Card and Krueger's findings.[5]

Footnotes

  1. 2014-03-15 Minimum Wage In Washington: After 16 Years, State With Highest Minimum Wage Maintains Lower Unemployment Than National, Regional Averages.
  2. 2014-01-08 Raising minimum wage doesn’t affect employment, in 3 charts (and 2 McDonald’s meals)
  3. 2015-08-13 Cutting Through the Hype Over Minimum Wage Increases "... In short, when you look at the data closely enough, you could see it as easily argues that a higher minimum wage actually increased the number of jobs." ... "... similar data for San Francisco showed an increase in restaurant jobs after an increase in minimum wage."
  4. 2014-10-16 If Minimum Wage Is So Great, Why Cite Bogus Study? claims that the PA/NJ study was refuted by a follow-up study, but does not cite any sources. Also makes a lot of other bogus arguments.
  5. 2009-06 Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis (paywalled) British Journal of Industrial Relations, Volume 47, Number 2