Last week the New York Post penned an op-ed attacking a proposal by NY Assembly Speaker Sheldon Silver (D-64) that would raise NY's minimum wage from $7.25 to $8.50 an hour. The editorial repeated debunked myths that raising the minimum wage would increase unemployment, increase the cost of products and services, and lower economic activity. Contrary to the Post's assertions, there has been little to no negative correlation between minimum wage and unemployment, and in some cases it's been shown that increasing the minimum wage would actually help create economic activity.
CLAIM: If Minimum Wage Is Increased Businesses Will Leave New York
NYPost: Increasing The Minimum Wage "Will Simply Encourage [Businesses] To Employ Fewer Workers. Or High-Tail It To Some Other State." According to a March 2012 editorial in the New York Post:
Forcing businesses to pay more for salaries will simply encourage them to employ fewer workers. Or high-tail it to some other state (or country). Or not set up shop here in the first place. [New York Post, 3/19/12]
FACT: Businesses Do Not Cut Employees Due To Minimum Wage Increases
Fiscal Policy Institute: "It Is Hard To Sustain The Argument Made By Some Observers That An Increase In The Minimum Wage Will Result In Adverse Aggregate Employment Outcomes." According to a 2004 report by the Fiscal Policy Institute:
We do not know enough from this analysis to conclude that increasing the minimum wage will boost employment growth over what it otherwise would have been. What does seem to be clear, however, is that it is hard to sustain the argument made by some observers that an increase in the minimum wage will result in adverse aggregate employment outcomes.
The analysis of employment and payroll data in this report -- across all states since the last increase in the federal minimum wage -- suggests that it is hard to argue that, in the aggregate, all businesses, or all small businesses, will be adversely affected by higher minimum wages. [Fiscal Policy Institute, 4/20/04]
Fiscal Policy Institute: "Employment And Payrolls In Small Businesses Grew Faster In The States With Minimum Wages Above The Federal Level." According to a 2006 report by the Fiscal Policy Institute:
Some observers contend that because many small businesses are labor intensive and largely employ low-wage workers, they will experience sharp cost increases when the minimum wage is increased, leading them to reduce employment levels. However, this report examined recent state-by-state trends for small businesses employing fewer than 50 workers and found that employment and payrolls in small businesses grew faster in the states with minimum wages above the federal level than in the remaining states where the $5.15 an hour federal minimum wage prevailed.
This report also found that total job growth was faster in the higher minimum wage states. Faster job growth also occurred in the retail trade sector, the sector of the economy employing the most workers at low wages, in the higher minimum wage states. [Fiscal Policy Institute, 3/30/06]
FACT: Businesses Do Not Leave Areas With A Higher Minimum Wage For Areas With A Lower One
Places With Higher Minimum Wage Laws Than Surrounding Areas Did Not Experience Statistically Significant Impacts On "Employment Or Business Closures." According to a 2006 UC Berkeley Institute of Industrial Relations Policy Brief:
During the debates preceding the votes on both cities' laws, businesses threatened to leave if a minimum wage were enacted. In this brief we have reviewed the economic impact studies conducted for San Francisco and Santa Fe, the two cities with citywide minimum wages. These studies, which both use sophisticated statistical techniques, found no significant impact on employment or business closures. [IIR Policy Brief, September 2006]
IIR Policy Brief: Areas With Higher Minimum Wage Policies "Do Not Experience An Exodus Of Major Retail Businesses." According to a UC Berkeley Institute of Industrial Relations Policy Brief:
In Table 3, we have taken the 2006 listing of the top 100 retailers (ranked by annual revenue) and indicated the businesses and number of stores that each retailer currently operates in San Francisco and Santa Fe.
Each city has a healthy representation of the nation's largest retailers, many with multiple stores and all paying the city's minimum wage. Indeed, Sam's Club in Santa Fe voluntarily started paying the higher minimum wage even before the law went into effect, and Wal-Mart is now building a new SuperCenter in the city. In San Francisco, Home Depot recently agreed to open its first store in the city and to pay an even higher wage of $10.77.
In Table 4, we compare the presence of the nation's top retailers in San Francisco before and after the city-wide minimum wage went into effect. As the table indicates, the number of different businesses and the number of stores in the city increased after the minimum wage policy was implemented. After combining the 2003 and 2006 top 100 lists, we found that 68 retailers maintained a market presence in the Greater SF Bay Area market in 2003 and/or 2006. Among these 68 retailers, 47 had stores in San Francisco in 2003, increasing to 52 retailers in 2006, while the number of stores operated by these retailers increased from 207 to 241.
Taken together, the results in these two tables indicate that cities with minimum wage policies do not experience an exodus of major retail businesses. [IIR Policy Brief, September 2006, emphasis added]
States That Border New York Are Also Seeking To Increase Their Minimum Wage. According to a CBS News article:
Legislative leaders from New York, New Jersey and Connecticut are pushing a novel, unified approach to promote higher minimum wages, hoping to spur a national movement and eliminate a major argument of opponents in the Northeast who say hikes hinder a state's competitiveness.
The Democrats want to increase the minimum from $7.25 an hour to about $8.50 in New York and New Jersey, and to about $9.75 over two years in Connecticut, where it's $8.25. There are several active proposals in the states. [Associated Press, 3/7/12]
CLAIM: Minimum Wage Increase Would Cause Unemployment, Less Economic Activity
NYPost: Increased Minimum Wage Will "Translate To Higher Unemployment -- And Lower Economic Activity." According to a March 2012 editorial in the New York Post:
Indeed, experts agree that mandatory wage hikes translate to higher unemployment -- and lower economic activity. [New York Post, 3/19/12]
FACT: Overall Employment Increased When New York Increased Its Minimum Wage In 2004
Total State Employment Increased 3 Percent In The Three Years Following The 2004 Wage Increase. According to the Fiscal Policy Institute:
FPI also has analyzed employment growth in New York State. From December 2004, the month preceding the first New York State minimum wage increase, to December 2007, total employment in the state has grown by 3.0 percent. In the retail trade and food services industries--the largest employers of minimum-wage workers--employment has risen by 3.3 percent. While these figures are smaller than the averages for the entire U.S. (4.4 percent and 4.8percent, respectively), the ratios of change of low-wage industry employment to overall employment are comparable (1.10 for New York State and 1.09 for the U.S.). In other words, the number of jobs in these heavily low-wage industries rose just as quickly in New York State relative to overall job growth as it did at the national level. These results do not support the prediction that the increases of the state's minimum wage between 2004 and 2007 would stymie growth in New York's low-wage industries. [Fiscal Policy Institute, 7/10/08]
FACT: Higher Minimum Wages Do Not Translate To Higher Unemployment
Contiguous Counties In Different States With Different Minimum Wages Show "No Employment Effects Of Minimum Wage Increases." According to a study by Arindrajit Dube, T. William Lester, and Michael Reich published in the November 2010 The Review of Economics and Statistics:
In this paper, we use a local identification strategy that takes advantage of all minimum wage differences between pairs of contiguous counties. Our approach addresses the twin concerns that heterogeneous spatial trends can bias the estimated minimum wage effects in traditional approaches using time and place fixed effects, and that not accounting for spatial autocorrelation overstates the precision in individual case studies.
For cross-state contiguous counties, we find strong earnings effects and no employment effects of minimum wage increases. By generalizing the local case studies, we show that the differences in the estimated elasticities in the two sets of studies result from insufficient controls for unobserved heterogeneity in employment growth in the national level studies using a traditional fixed-effects specification. The differences do not arise from other possible factors, such as using short before-after windows in local case studies. [The Review of Economics and Statistics, November 2010, emphasis added]
Despite Calls That Increasing The Minimum Wage In California Would Be A Job Killer, "1.1 Million Jobs Were Created In The Five Years" After The Increase. According to an op-ed by Donald Cohen, Director of the Cry Wolf Project:
The California Chamber has opposed every proposed increase in the state's minimum wage in recent memory, describing it as the ultimate "job killer." In 1996, voters adopted Proposition 210 to raise the state minimum wage in two steps from $4.75 to $5.75 in 1998. California's minimum wage had been stuck at $4.25 since 1988 until the October 1996 Federal Minimum increase to $4.75. per hour. The Chamber claimed that year's proposed increase was a "job killer" that would disrupt small business and damage the state's economy. But contrary to the predictions of doom, 1.1 million jobs were created in California in the five years after Proposition 210 passed. [Cry Wolf Project, 5/19/11]
FACT: Economic Activity Has Increased Following A Minimum Wage Increase
Federal Reserve Bank Of Chicago: "A $1 Minimum Wage Hike Increases Total Spending By Approximately $700 Per Quarter In The Near-Term." According to a study by the Federal Reserve Bank of Chicago:
First, a $1 minimum wage hike increases total spending by approximately $700 per quarter in the near-term. This exceeds the roughly $250 per quarter increase in family income following a minimum wage hike of similar size. These patterns are corroborated by independent data showing that debt rises substantially after a minimum wage increase. Second, the majority of this additional spending goes toward durable goods, in particular vehicles. Consequently, the spending response is concentrated among a small number of households. Third, total spending increases within one quarter of a minimum wage increase and not prior, despite legislation typically passing 6 to 18 months before enactment. Finally, high levels of durables spending and debt accumulation persist for several quarters after a minimum wage hike. [Federal Reserve Bank of Chicago, 2/8/11]
"Indicators Of Economic Performance Were Consistently Better" In Higher Minimum Wage States For Small Business Job Growth. According to the Fiscal Policy Institute:
In examining state-level small business job growth, the best government data available permits a comparison of 1998 and 2003; the latter is the most recent year for which the data are available. For the 10 states and the District of Columbia that had set their minimum wages above the federal level for most of this period, indicators of economic performance were consistently better than for the other 40 states where the federal minimum wage of $5.15 an hour prevailed. [Fiscal Policy Institute, 3/30/06]
NYTimes: Small Business Owners In A State With Higher Minimum Wage "Have Prospered Far Beyond Their Expectations." According to the New York Times:
Just eight miles separate this town on the Washington side of the state border from Post Falls on the Idaho side. But the towns are nearly $3 an hour apart in the required minimum wage. Washington pays the highest in the nation, just under $8 an hour, and Idaho has among the lowest, matching 21 states that have not raised the hourly wage beyond the federal minimum of $5.15.
Nearly a decade ago, when voters in Washington approved a measure that would give the state's lowest-paid workers a raise nearly every year, many business leaders predicted that small towns on this side of the state line would suffer.
But instead of shriveling up, small-business owners in Washington say they have prospered far beyond their expectations. In fact, as a significant increase in the national minimum wage heads toward law, businesses here at the dividing line between two economies -- a real-life laboratory for the debate -- have found that raising prices to compensate for higher wages does not necessarily lead to losses in jobs and profits.
Idaho teenagers cross the state line to work in fast-food restaurants in Washington, where the minimum wage is 54 percent higher. That has forced businesses in Idaho to raise their wages to compete.
Business owners say they have had to increase prices somewhat to keep up. But both states are among the nation's leaders in the growth of jobs and personal income, suggesting that an increase in the minimum wage has not hurt the overall economy.
"We're paying the highest wage we've ever had to pay, and our business is still up more than 11 percent over last year," said Tom Singleton, who manages a Papa Murphy's takeout pizza store here, with 13 employees. [New York Times, 1/11/07]
CLAIM: Youth Unemployment Increases When Minimum Wage Is Increased
NYPost: "20 Percent Of Jobs ... Held By 16- To 29- Year-Olds Who Lack A High-School Diploma" Were Lost When New York Last Increased Its Minimum Wage. According to a March 2012 editorial in the New York Post:
A study just this year found that New York lost a full 20 percent of jobs -- one in five -- held by 16- to 29-year-olds who lack a high-school diploma when it last bumped up its wage floor in 2004. [New York Post, 3/19/12]
FACT: The Minimum Wage Has Little To No Effect On Youth Unemployment
Study: "Put Simply, Our Findings Indicate That Minimum Wage Increases [...] Do Not Reduce Employment Among Teens." According to a study by Sylvia A. Allegretto, Arindrajit Dube, and Michael Reich published in UC Berkeley's April 2011 edition of Industrial Relations:
Our analysis finds that heterogeneity in employment patterns and selectivity among states constitute significant concerns for conventional minimum wage studies. Although adding division and state trend controls does not constitute a panacea, they provide important controls that mitigate the bias from unobserved heterogeneities that may be correlated with minimum wage changes. Since estimates in previous national-level studies insufficiently address this issue, they do not provide a credible guide for public policy. Interpretations of the quality and nature of the evidence in the existing minimum wage literature, such as those in Neumark and Wascher (2007b, 2008), must be revised substantially. Put simply, our findings indicate that minimum wage increases -- in the range that have been implemented in the United States -- do not reduce employment among teens. [Industrial Relations, April 2011, emphasis added]
EPI: "The Warnings Of Massive Teen Job Loss Due To Minimum Wage Increases Simply Do Not Comport With The Evidence." In a November 25, 2009 post, the Economic Policy Institute found:
First, the labor market is in a severe downturn that is affecting essentially all groups. Since the recession started in December 2007, the overall employment rate has fallen from 62.7% to 58.5%, including a decline of 0.9 percentage points since July alone. Figure A shows the overall employment rate, along with the teen employment rate. Both the overall rate and the teen rate have experienced steep declines during the current downturn. The teen rate, however, has fallen farther, as the plot shows is always the case in recessions (recessions are shaded). Teen workers occupy the "last hired, first fired" rung on the job ladder, and their employment is hit much harder during downturns than that of older workers.
Figure B illustrates this further -- it shows teen employment as a percent of total employment over time. Because teens are hit harder by downturns than older workers, their share of total employment drops during recessions (and, for the recessions of 1990 and 2001, during the period of joblessness that followed them). A quick examination of the plot reveals that far from being an aberration, the decline in the teen share of employment over the last two years is right in line with what would be expected given the length and severity of the current downturn in the labor market.
Instead, Figure B illustrates how teen employment is driven far more by larger labor market employment trends than by any effects of minimum wage changes. The black lines in Figure B mark times when Congress increased the minimum wage to keep up with inflation. The two-step increase in 1990 and 1991 occurred during a period of deterioration in the labor market, and the teen employment share dropped. The two-step increase in 1996 and 1997 occurred during a strong labor market, and the teen employment share increased. The three-step increase in 2007, 2008, and 2009 occurred during a weak labor market, and the teen employment share fell.
This observation is consistent with what careful empirical studies have found. While it is true that there is some disagreement among economists about whether increasing the minimum wage increases or decreases employment, there is a consensus on the essential point: the impact of a minimum wage raise on jobs, whether positive or negative, is small. The warnings of massive teen job loss due to minimum wage increases simply do not comport with the evidence. [EPI.org, 11/25/09]
University Of California Study: Minimum Wage Has Nothing "But Very Small Disemployment Effects" On Teen Employment. A June 2010 report by University of California-Berkeley's Institute for Research on Labor and Employment (IRLE) stated:
Traditional estimates that often find minimum wage disemployment effects include controls for state unemployment rates and state- and year-fixed effects. Using CPS data on teens for the period 1990-2009, we show that such estimates fail to account for heterogeneous employment patterns that are correlated with selectivity among states with minimum wages. As a result, the estimates are often biased and not robust to the source of identifying variation. Including controls for long-term growth differences among states and for heterogeneous economic shocks renders the employment and hours elasticities indistinguishable from zero and rules out any but very small disemployment effects. Dynamic evidence further shows the nature of bias in traditional estimates, and it also rules out all but very small negative long-run effects.
Some observers maintained that teen unemployment would increase because of the timing of these minimum wage increases. Teen unemployment rates did indeed increase throughout 2008 and 2009. The teen unemployment rate was 16.9 percent at the start of the recession in December 2007 and increased to 20.8 percent in July 2008 and again to 24.5 percent in July 2009. Were these increases in teen unemployment a result of minimum wage increases during an especially severe economic downturn, or simply the result of harsh economic conditions?
More generally, are the disemployment effects of minimum wage for teens more pronounced (or at least present) when the labor market is slack? To the extent the measured employment effects are small for monopsonistic reasons, some firms are labor supply-constrained as opposed to labor-demand constrained. But this is less likely to be the case when the unemployment rate is high and job vacancy is low. There may be other possibilities as well, including a greater consumer demand effect from an increase in minimum wages during a recession.
Overall, the results do not indicate heterogeneous impacts of minimum wages depending on the overall rate of unemployment. Within the range of variation the minimum wage and overall unemployment rates in our sample, the effects do not seem to vary across phases of the business cycle or across labor markets with differing labor market tightness. [IRLE, 6/21/10]
National Employment Law Project: Most Minimum Wage Earners Are Adults, Not Teenagers. In a December 26, 2010, Register-Guard op-ed, the National Employment Law Project's (NELP) Anne Thompson wrote: "Even the claim that the minimum wage only affects teenagers looking for pocket change does not hold up. Most minimum wage earners are adults, many of whom support families on this income. Nationwide, three-quarters of minimum wage earners are 20 or older." [Register-Guard, 12/26/10]