The Job Loss Myth

The Most Rigorous Research Shows Minimum Wage Increases Do Not Reduce Employment

The opinion of the economics profession on the impact of the minimum wage has shifted significantly over the past fifteen years. Today, the most rigorous research shows little evidence of job reductions from a higher minimum wage. Indicative is a 2013 survey by the University of Chicago’s Booth School of Business in which leading economists agreed by a nearly 4 to 1 margin that the benefits of raising and indexing the minimum wage outweigh the costs.

This page reviews the most widely-cited and influential studies on the impact of minimum wage increases on employment, and examines the primary reasons why low-wage employers can afford higher wages today.

Source: Doucougliagos and Stanely, “Publication Selection Bias in Minimum Wage Research? A Meta-Regression Analysis,” British Journal of Industrial Relations, 2009. (with NELP annotations) Source

 

Study: Why Does the Minimum Wage Have No Discernible Effect on Employment? (2013)

Summary: Reviews the past two decades of research on the impact of minimum wage increases on employment: this study concludes that the weight of the evidence points to little or no effect of minimum wage increases on job growth. The study also finds that a review of the minimum wage literature commonly cited by minimum wage opponents is flawed because it is subjective, relies in large part on studies of wage increases in foreign countries, and fails to consider the most sophisticated and recent minimum wage studies.

Paul Krugman, Princeton University, February 2013: “Now, you might argue that even if the current minimum wage seems low, raising it would cost jobs. But there’s evidence on that question — lots and lots of evidence, because the minimum wage is one of the most studied issues in all of economics. U.S. experience, it turns out, offers many ‘natural experiments’ here, in which one state raises its minimum wage while others do not. And while there are dissenters, as there always are, the great preponderance of the evidence from these natural experiments points to little if any negative effect of minimum wage increases on employment.” (Source)

Bloomberg News, April 2012: "[A] wave of new economic research is disproving those arguments about job losses and youth employment. Previous studies tended not to control for regional economic trends that were already affecting employment levels, such as a manufacturing-dependent state that was shedding jobs. The new research looks at micro-level employment patterns for a more accurate employment picture. The studies find minimum-wage increases even provide an economic boost, albeit a small one, as strapped workers immediately spend their raises.” (Source)

 

In Focus: Two Leading Studies on Minimum Wage and Job Growth 

Study: Do Minimum Wages Really Reduce Teen Employment? (2011)

Summary: Examines every minimum wage increase in the United States over the past two decades—including increases that took place during protracted periods of high unemployment—and finds that raising the wage floor boosted incomes without reducing employment or slowing job creation.  The research demonstrates how a body of previous research—one frequently relied on by business lobbyists who oppose minimum wage increases—inaccurately attributes declines in employment to increases in the minimum wage by failing to sufficiently account for critical economic factors. [NELP Summary]

Study: Minimum Wage Effects Across State Borders (2010)

Summary: Provides the most sophisticated study to date of the effects of increases in the minimum wage on job growth in the United States.  Taking advantage of the fact that a record number of states raised their minimum wages during the 1990s and 2000s – creating scores of differing minimum wage rates across the country – the study compares employment levels among every pair of neighboring U.S. counties that had differing minimum wage levels at any time between 1990 and 2006 and finds that higher minimum wages did not reduce employment. [NELP summary]

Lawrence Katz, Harvard University, April 2011: “This is one of the best and most convincing minimum wage papers in recent years.” (Source)

David Autor, Massachusetts Institute of Technology, April 2011: “The paper presents a fairly irrefutable case that state minimum wage laws do raise earnings in low wage jobs but do not reduce employment to any meaningful degree. Beyond this substantive contribution, the paper presents careful and compelling reanalysis of earlier work in this literature, showing that it appears biased by spatial correlation in employment trends.” (Source)

 

Foundational Research on Minimum Wage and Job Growth

Study: Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply (2000)

Summary: A follow-up study by David Card and Alan Krueger that repeats their 1994 analysis, but uses official government data to determine employment figures. The study finds that the minimum wage increase in New Jersey did not affect employment in fast-food restaurants after New Jersey’s 1991 increase or after the 1996-1997 federal increases eliminated the differences in minimum wages between the two states.

Study: Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania (1994)

Summary: A landmark study published by David Card and Alan Krueger in the American Economic Review examining employment at fast-food restaurants on both sides of the New Jersey-Pennsylvania border after New Jersey raised its minimum wage to $5.05 an hour while Pennsylvania’s minimum wage held constant. The authors conducted a phone survey of over 400 fast-food restaurants and found no evidence that the increase in the minimum wage in New Jersey led to job loss—in fact they found employment increased in fast-food restaurants in New Jersey. For this and related research, Card was awarded the John Bates Clark medal in 1995—the so-called “junior Nobel prize,” granted by the American Economics Association every two years to the best economist under forty.

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Why Do Minimum Wage Increases Not Reduce Employment?

#1) The vast majority of low-wage workers are employed by large corporations, not small businesses:

Study: Big Business, Corporate Profits, and the Minimum Wage (2012)

Summary: An analysis of Census Bureau data finds that roughly two thirds (66 percent) of low-wage workers are employed by large companies with over 100 employees, not small businesses. Furthermore, the largest low-wage employers – including retail and fast food chains such as Walmart and McDonalds – are earning strong profits today and can afford higher wages.

New York Times, January 2013: “Efforts to raise the minimum invariably run into arguments that employers, especially small businesses, cannot afford to pay a higher wage. But the evidence shows that most low-wage employees work for large companies, which have largely recovered from the recession and have reinstituted generous pay packages for executives.” (Source)

#2) There are significant savings that result from paying higher wages – including reduced employee turnover and increased productivity – and these savings help offset the cost to employers of a minimum wage increase. 

Study: Why “Good Jobs” Are Good for Retailers (2012)

Summary: Harvard Business Review study by MIT Professor Zeynep Ton documents how major retailers such as Trader Joe’s and Costco benefit for higher sales revenue and profits than their low-wage competitors by investing in their employees, which reduces turnover and boosts productivity. For example, the starting wage at Trader Joe’s ranges between $40,000 and $60,000 per year, more than twice what many of its competitors offer, and yet the sales revenue per square foot at Trader Joe’s are three times higher than the average U.S. supermarket.

Costco CEO Craig Jelinek, March 2013: “We pay a starting hourly wage of $11.50 in all states where we do business, and we are still able to keep our overhead costs low. An important reason for the success of Costco’s business model is the attraction and retention of great employees. Instead of minimizing wages, we know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty. We support efforts to increase the federal minimum wage." (Source)

Study: Minimum Wage Shocks, Employment Flows, and Labor Market Frictions (2012)

Summary: Study by economists at the University of California-Berkeley, University of Massachusetts-Amherst, and University of North Carolina-Chapel Hill finds sharps reductions in employee turnover in the first nine months following a minimum wage increase on the state level.

Study: Living Wages and Economic Performance (2003)

Summary: Examines the effects of a wage increase for workers at the San Francisco Airport, finding that annual turnover among security screeners plunged from 95 percent to 19 percent when their hourly wage rose from $6.45 to $10 per hour. After wages increased at the airport under a living wage policy, 35 percent of employers reported improvements in work performance, 47 percent reported better employee morale, 44 percent reported fewer disciplinary issues, and 45 percent reported that customer service had improved.

#3) Raising the minimum wage boosts consumer spending, generating higher sales revenue for local businesses and promoting economic growth.

Study: Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-Needed Boost. (2013)

Summary: An analysis by the Economic Policy Institute shows that the Fair Minimum Wage Act of 2013, which would raise the federal minimum wage to $10.10 per hour and index it to inflation, would generate more than $30 billion in new economic activity and support the creation of 140,000 new full-time jobs as businesses expand to meet increased consumer demand.

Mayor Michael Bloomberg, February 2012, “Raising the minimum wage will put much-needed cash in the pockets of more than 1.2 million New Yorkers, who will spend those extra dollars in local stores.” (Source)

Study: Poor Sales, Not High Wages, Worry Small Businesses (2012)

Summary: An analysis of polling by the National Federation of Independent Businesses shows that small business owners consistently cite low sales revenue as their main economic concern, with concern over wage costs ranking as a minor consideration even through the Great Recession. Study concludes that the real concern among small businesses is not that their low-wage workers earn too much, but that their customers earn too little.

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The Bottom Line on Minimum Wage and Job Growth:

Two decades of rigorous economic research have found that raising the minimum wage does not result in job loss. While the simplistic theoretical model of supply and demand suggests that raising wages reduces jobs, the way the labor market functions in the real world is more complex. Researchers and businesses alike agree today that the weight of the evidence shows no reduction in employment resulting from minimum wage increases.

The Economist, November 2012: “Evidence is mounting that moderate minimum wages can do more good than harm. […] Bastions of orthodoxy, such as the OECD, a rich-country think-tank, and the International Monetary Fund, now assert that a moderate minimum wage probably does not do much harm and may do some good. Their definition of moderate is 30-40% of the median wage. Britain’s experience suggests it might even be a bit higher.” (Source)

Crain's New York BusinessFebruary 2012: "“Critics of [the minimum wage] proposal are making the same arguments as the last time the Legislature increased the minimum wage, in 2004. The hike to $7.15 an hour from the federal minimum of $5.15 was phased in over three years. If the change had a cataclysmic effect on businesses that depend heavily on minimum-wage workers, we certainly missed it. Objections . . .  while meriting consideration, are essentially objections to the very existence of a minimum wage, which has been a fixture in the U.S. since 1938 and has never stopped our economy from flourishing.” (Source

The FactsThe Facts

$10.74

How much the federal minimum wage would be if it had kept up with inflation over the past 40 years. Instead, itís $7.25. Learn More

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