Beginning in 2007, there were two major developments in the U.S. economy. The federal minimum wage rose in steps from $5.15 to $7.25 per hour, and overall employment growth slowed significantly as the country began its descent into the Great Recession. A recent paper by Jeffrey Clemens and Michael Wither argues that the national minimum wage increase from 2007 to 2009 was responsible for a substantial portion of the employment decline (Clemens and Wither 2016). Their conclusions are mistaken because the authors fail to adequately control for the effects of the Great Recession. A number of robustness tests make this clear.
- States with large increases in the minimum wage had relatively more jobs in industries hardest hit by the Great Recession, such as construction. Controlling for a state’s industrial structure substantially reduces the magnitude of Clemens and Wither’s estimates, rendering them statistically insignificant.
- States with large increases in the minimum wage were in regions of the country that were hardest hit by the Great Recession. Regional controls accounting for the geographic concentration of minimum wage–raising states also substantially reduce the magnitude of Clemens and Wither’s findings.
- A simple “placebo” test shows that Clemens and Wither’s findings are statistically biased because they failed to account for regional differences in the effects of the Great Recession.
Once proper controls are included, there is no significant evidence that job losses in the post-2007 period were driven by minimum wage increases. Rather, industrial and geographic exposure to the Great Recession account for the employment differences between states with and without significant minimum wage increases. These employment differences are correlated with but not caused by the minimum wage.
Chosen excerpts by Job Market Monitor. Read the whole story at Employment fell because of the Great Recession, not the minimum wage: Study claiming the minimum wage harmed low-wage workers fails conventional tests | Economic Policy Institute