Monday 25 January 2010

Minimum wage - empirics

Not that empirics matter for much in minimum wage debates, but here are some of the ones I used when I included a week on labour markets in my Econ 224 course.
  • Deere, Murphy and Welch, American Economic Review May 1995. The 1990-1991 minimum wage increases hurt employment outcomes for younger workers, blacks, and high school drop-outs. The increase in minimum wage from $3.35 to $3.80 reduced teenage male employment by 4.8%, female teen employment by 6.6%, black teen employment by 7.5%. For adult high school dropouts, employment dropped by 1.5%, 2.5% and 4.4% for men, women and blacks, respectively. A second hike to $4.25/hr further reduced employment for marginal groups.
  • Neumark and Nizalova find that exposure to higher minimum wages while young has long term detrimental effects on worker wages, and that these effects are worst for black workers. They do things like comparing employment outcomes for low-education black youths in states with low minimum wages with kids in states with high minimum wages. You might think that worse employment outcomes for youths aren't all that bad - who cares if some college kids can't find summer jobs, right? Except that this really hits the low education inner city youths who never are able to make up for the work experience forgone.
    The evidence points quite clearly to more adverse longer-run effects of minimum wages for blacks. Focusing again on the estimates for 25-29 year-olds, we find that, for blacks, exposure to a higher minimum wage during ages 16-19 or 20-24 is associated with significant negative reductions in wages, employment, hours, and earnings. The estimates for whites are often about one-quarter to one-third as large, although still generally statistically significant.
  • Tim Leonard surveys some of the economic controversies around the minimum wage
  • Leonard also goes through the not-so-secret secret history of the minimum wage: progressives in the US largely favoured the minimum wage because it would cause unemployment among groups they didn't want working. Women and minorities, absent the minimum wage, would undercut wages for white male heads of households and so had to be made unemployable by use of the minimum wage. It was specifically sexist and racist. Go read the whole thing.
Economists don't oppose minimum wages because we're tools of the capitalists or because our hourly rates are well above minimum wage. We oppose them because they, on average, hurt the people they're intended to help. Some folks get a higher wage (though potentially coupled with lower on-the-job training or lower non-pecuniary benefits); other folks get no job at all.

I'd love to see iPredict open markets on Maori youth employment rates, then open some joint markets on those rates conjunct with the different minimum wage contracts. Then I'd like to see the folks at the Standard put up or shut up. In their world, there are no disemployment effects from minimum wages. I'd like to know how committed they are to those beliefs.


  1. Regarding the first study - can't access JSTOR until next year - did they adjust for the recession in 1990-1991?

  2. They exploited, if I recall correctly, that the fed increase was binding in some states but not in others (some states had minimum wages that were already higher, and the proportion of workers on the minimum wage will vary also with state cost of living).

  3. Quick re-scan: they compare groups with higher proportions of minimum wage workers to groups with lower proportions to estimate the effects. Suppose a counter could be that those groups are just more vulnerable in recessions regardless of minimum wage effects. But the overall pattern in Minimum Wages is compelling as well....