Academic Literature

Economic Research on Minimum Wage in US – A clear picture that is at odds with how this research is often summarized

The disagreement among studies of the employment effects of minimum wages in the United States is well known. What is less well known, and more puzzling, is the absence of agreement on what the research literature says – that is, how economists even summarize the body of evidence on the employment effects of minimum wages. Summaries range from “it is now well- established that higher minimum wages do not reduce employment,” to “the evidence is very mixed with effects centered on zero so there is no basis for a strong conclusion one way or the other,” to “most evidence points to adverse employment effects.”

We explore the question of what conclusions can be drawn from the literature, focusing on the evidence using subnational minimum wage variation within the United States that has dominated the research landscape since the early 1990s. To accomplish this, we assembled the entire set of published studies in this literature and identified the core estimates that support the conclusions from each study, in most cases relying on responses from the researchers who wrote these papers.

Our key conclusions are:

(i) there is a clear preponderance of negative estimates in the literature;

(ii) this evidence is stronger for teens and young adults as well as the less-educated;

(iii) the evidence from studies of directly-affected workers points even more strongly to negative employment effects; and

(iv) the evidence from studies of low-wage industries is less one-sided.

We set out to take stock of the U.S. minimum wage literature on employment effects beginning with the New Minimum Wage Research in 1992, which moved towards more rigorous identification of minimum wage effects than the earlier, predominantly time-series data. We were motivated not by the conflicting studies in this literature – and indeed in this paper we do not focus on adjudicating between these conflicting studies. Rather, we were motivated by the sharply different summaries of what this literature says, because, surprisingly, economists seem to not even agree on which way the entire set of studies points. Does the research literature by and large establish that there are no employment effects, as some suggest? Is the evidence roughly balanced between finding disemployment effects or not? Or does the research point predominantly to job loss for lower-skilled workers from a higher minimum wage? We answer these questions by summarizing the preferred estimates of authors of the studies in this literature. Our key conclusions are as follows:

First, there is a clear preponderance of negative estimates in the literature. In our data, 78.9% of the estimated employment elasticities are negative, 53.9% are negative and significant at the 10% level or better, and 46.1% are negative and significant at the 5% level or better.

Second, there is some difference across studies depending on the minimum wage variation used, with the studies using state variation across many states, or federal variation, predominantly pointing to negative effects on employment, while the case studies relying on narrowing comparisons still point in this direction, but more weakly.

The more important variation stems from differences across studies in the set of workers for whom employment effects are estimated. There is strong and consistent evidence of negative employment effects for teens, young adults, the less-educated, and directly-affected (low-wage) workers, with the estimated elasticities generally larger for the less-educated than for teens and young adults, and larger still for directly-affected workers. In contrast, the evidence from studies of low-wage industries is less one-sided, with a smaller percentage of negative or negative and significant estimates.

Overall, we conclude that the preferred estimates of authors of studies evaluating the employment effects of minimum wages in the United States, since the advent of the New Minimum Wage Research in 1992, paint a clear picture that is at odds with how this research is often summarized. In its totality, this body of evidence and conclusions points strongly toward negative effects of minimum wages on employment of less-skilled workers.

The exception is for the industry studies. However, this is likely because there is far greater scope for labor-labor substitution within industries than within groups of workers who are lower-skilled on average, and even more so for groups of workers that are uniformly lower skilled. These industry studies may tell us that it is not so clear whether employment in an industry declines when the minimum wage increases. But this does not in any way rule out larger gross employment declines for the less-skilled workers in those industries; and the clearer evidence of employment declines for less- skilled workers suggest this is exactly what is going on. In other words, a good deal of the evidence that is less consistent with disemployment effects comes from industry studies, but this may be the evidence that is least relevant to the question of whether some low-skilled workers lose their jobs when the minimum wage increases. Conversely, the evidence is much clearer that employment does decline among low-skilled workers when the minimum wage increases – and the most relevant evidence may be that for directly-affected workers.

To be clear, the evidence is not unambiguous. There are studies, including those of low-skilled workers, that do not find employment effects that are significantly different from zero, and/or with estimates that are near zero or sometimes even positive. But concluding that the research evidence as a whole fails to find disemployment effects of minimum wages requires discarding or ignoring most of the evidence on low-skilled workers or relying on the industry studies where labor-labor substitution is more likely to mask job loss among the least-skilled workers.

There are other sources readers can consult for discussions of whether a particular subset of studies is most likely to be correct or incorrect. In particular, we would recommend Neumark and Wascher (2007), Dube et al. (2010), Allegretto et al. (2011), Neumark et al. (2014a, 2014b), Schmitt (2015), Allegretto et al. (2017), Neumark and Wascher (2017), Clemens (2019), and Neumark (2019).

Alternatively, one could believe that, despite the clear preponderance of negative estimates, publication bias is so severe that the true estimate is zero or even positive. We have three responses to this potential argument. First, we have argued that it is difficult to convincingly test for publication bias in the minimum wage literature. Second, the evidence on publication bias in the minimum wage literature that does exist does not support this conclusion. Third, this paper responds to conflicting summaries of the published estimates of the employment effects of minimum wages, not claims about publication bias.

Based on these evaluations (or new ones), economists and others may decide that in fact the best evidence indicates that minimum wages do not reduce employment of less-skilled workers in the United States. But our analysis shows clearly that most of the evidence indicates the opposite – that minimum wages reduce low-skilled employment. It is incumbent on anyone arguing that research supports the opposite conclusion to explain why most of the studies are wrong.

Chosen excerpts by Job Market Monitor. Read the whole story @ MYTH OR MEASUREMENT: WHAT DOES THE NEW MINIMUM WAGE RESEARCH SAY ABOUT MINIMUM WAGES AND JOB LOSS IN THE UNITED STATES?

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