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October 17, 2013 / needhamgrassroots

Myth-check: “Increasing the Minimum Wage = Job Killer!”

popMYTH: “I’m opposed to the Minimum Wage — it just means employers will FIRE people!”

REALITY: We already pay for the cheap labor of minimum wage workers. Cheap labor drives down the value of labor for all workers.

In Massachusetts, a full-time minimum wage worker supporting a family will be under the poverty level.  Which means, low-wage workers with families are already being “paid for” by your tax dollars — thru social safety net programs. If the working poor can become simply “workers”, we will see movement of hard-working individuals off of “welfare”.

While many like to intone that “jobs WILL be lost if you raise the minimum wage,” an honest debate would show that most economists agree that minimum wage increases have little net effect on job creation:  yes, some number of jobs will be cut. BUT, jobs will ALSO be created, because with more money in their pockets, low-wage workers will become more active spenders, increasing demand and therefore jobs. “It will kill jobs” simply isn’t true.

BIBLIOGRAPHY/FURTHER READING:

EXCELLENT OVERALL RESOURCE FROM MASS BUDGET AND POLICY:

HOW WE ARE SUBSIDIZING CHEAP LABOR VIA TAXES:

MIN WAGE INCREASES HAVE LITTLE NEGATIVE EFFECT ON EMPLOYMENT:

As argued by Progress Mass.:

An analysis by the Center for Economic and Policy Research from February of this year resulted in very clear findings:

A new paper from the Center for Economic and Policy Research finds that modest increases in the minimum wage – such as the one proposed by President Obama in his State of the Union address – have little impact on employment, due to adjustments by employers and workers. The paper, “Why Does the Minimum Wage Have No Discernible Effect on Employment?” by economist John Schmitt reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. It finds that the strongest evidence suggests the most important adjustments are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners (“wage compression”); and small price increases.

“This is one of the most studied topics in economics, and the evidence is clear: modest minimum wage increases don’t have much impact on employment,” Schmitt said. “An increase to $9.00 per hour would be hugely important for the workers getting it, but the idea that this would lead to less employment is just not supported by the evidence.”

This finding echoes the results of numerous other studies by economists in recent years, evidencing that increasing the minimum wage simply does not harm employment.

The first study, published in November 2010 in the Review of Economics and Statistics by Arindrajit Dube of the University of Massachusetts, Amherst; T. William Lester of the University of North Carolina, Chapel Hill; and Michael Reich of the University of California, Berkeley, compared all of the adjacent counties that touch a state border where there is a difference in the mandated minimum wage in each state. Overall, the authors found that minimum wage increases raise wages for low-wage workers but do not reduce employment. […]

The second recent study, published in April [of 2011] in Industrial Relations by Sylvia A. Allegretto of the University of California, Berkeley; Arindrajit Dube; and Michael Reich, focused on state-level data. The authors replicated the models of researchers whose studies of teen employment found that increases in the minimum wage create job losses and are often cited by minimum wage opponents. (Teen employment is often viewed by minimum wage scholars as an indicator of the impact on the lowest-skilled workers.)

Again, however, when the authors added appropriate variables to control for regional differences–variables that previous researchers had omitted–they found that minimum wage increases do not reduce teen employment levels. Allegretto, Dube, and Reich specifically included an analysis of the effect of the minimum wage during the recessions of 1990-1991, 2001, and 2007-2009 and again found no impact on hours worked or employment levels.

Further, this isn’t just new conventional wisdom from the last few years.  Analysis of actual minimum wage increases back in the 1990’s had similar findings:

But research in the 1990s, specifically a study authored by economists David Carr and Alan Kreuger, seemed to prove otherwise, or at least to poke holes in this theory. Carr and Kreuger studied the effect of an increase in the minimum wage in New Jersey from $4.25 to $5.05 per hour in 1992. They surveyed 410 fast food restaurants in New Jersey and nearby counties in neighboring Pennsylvania, which saw no increase in the minimum wage. Their study found that New Jersey’s minimum wage hike didn’t negatively affect employment — in fact, they found, employment increased.

Since this 1992 paper, several other studies using similar methodologies have come to similar conclusions.

In short, numerous studies across the country spanning multiple decades find that increasing the minimum wage simply does not harm employment.

If Republican Charlie Baker wants to oppose an increase in the minimum wage, he ought to find a more defensible excuse than the one he offered to Boston Herald Radio this morning because his misguided fears of a minimum wage increase hurting employment just doesn’t square with economic reality.

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