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Raising the Minimum Wage is Not Win-Win

Jared Meyer | 12/03/2013
AP/The Flint Journal

Recent New York Times opinion articles by Arindrajit Dube and Paul Krugman suggest that raising the minimum wage will have no effects on employment. 

University of California (Irvine) professors David Neumark and J.M. Ian Salas and Federal Reserve Board of Governors economist William Wascher show that raising the minimum wage will result in fewer jobs for teens and low-skill workers. Their recent working paper, Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater, was released by the National Bureau of Economic Research this year. They conclude that “the research record still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”

This debate shows the problems of statistical analysis when interpreting complex economic situations. Since fewer than 3 percent of American workers are paid the minimum wage or below, teasing out effects on the aggregate economy is complex—many are unseen.

Nevertheless, evidence is clear that teens and low-skill workers are disproportionately affected by increases in the minimum wage (see Neumark's review of minimum wage literature). When minimum wage is increased, workers whose skills are below the new level are pushed out of or blocked from entering the workforce. Young people (half of those earning the minimum wage) who are looking to gain experience are put at a disadvantage. In earlier work, Neumark has shown that higher minimum wages particularly affect African American teens, whose unemployment rate is now 36 percent. 

Most who want a higher minimum wage argue in support of increasing the federal, not state or local, minimum wage. Twenty-one states and the District of Columbia have a rate above the federal level. The commonly proposed federal rate of $10.10 is above Washington State’s level of $9.19 an hour—the highest in the nation. Labor market conditions and cost of living differ throughout the country, as is shown by how difficult it is to statistically measure the real effects of minimum wage increases.

Pretending that increasing the rate would have no negative effects on inexperienced and low-skill workers is misleading and unrealistic. If minimum wages had no effect, why stop at $10.10? Why not $20.20, or $30.30? The answer, of course, is that many people would not be employed—just as some will not be employed with an increase in the wage to $10.10. As is the case with many well-intentioned policies, the losers of higher minimum wage laws are those who are young or low-skilled.


Jared Meyer is a research associate at the Manhattan Institute for Policy Research. You can follow him on Twitter here.