 Policy Debate:
Does an increase in the minimum wage result in a higher unemployment rate?
Issues and Background
The minimum wage does not prevent everyone from getting any job.
But the minimum wage does make it more difficult for those who already
have a hard time getting a job - the least skilled - to begin or continue
a career. Passing a law that forces people to earn a minimum amount
in order to work seems a cruel policy in an already cruel world?
~Donald
R. Deere
Our findings suggest that the efficiency aspects of a modest rise
in the minimum wage are overstated.... [W]e find no evidence for a large
negative employment effect of higher minimum wages. Even in the earlier
literature, however, the magnitude of the predicted employment losses
from a much higher minimum wage would be small: the evidence at hand
is relevant only for a moderate range of minimum wages, such as those
that prevailed in the U.S. labor market during the past few decades.
Within this range, however, there is little reason to believe that increases
in the minimum wage will generate large employment losses.
~David Card and Alan B. Krueger, Myth and Measurement: The New Economics
of the Minimum Wage, (Princeton: Princeton University Press, 1995, p.
393).
Minimum wage laws in the U.S. were first introduced during the 1930s
in response to the Great Depression. This period was characterized by
falling output, falling prices, and falling employment. The National Industrial
Recovery Act (NIRA) of 1933 attempted to stop this downward spiral by
encouraging the formation of trade association agreements that established
price floors and minimum wages. This was the first national attempt to
introduce minimum wages in major industries. Those firms that participated in the trade association agreements were able
to display a "blue eagle" logo in their establishments. In 1935,
the U.S. Supreme Court ruled that the NIRA was unconstitutional, and these
initial minimum wage agreements were terminated.
In 1938, the Fair Labor Standards Act (FLSA) established a national minimum
wage of $0.25 an hour. (This act also established restrictions on child
labor and required that overtime pay be provided for hours of work in
excess of 40 hours per week.) This Act initially only applied to a relatively
small share of the labor force, but has been revised over time so that
it now applies to approximately 90% of all nonsupervisory workers.
Introductory economics textbooks usually first introduce the minimum
wage as an application of demand and supply analysis. This initial discussion
is usually based on the following assumptions:
- the labor market is perfectly competitive,
- the minimum wage covers all workers, and
- worker productivity is unaffected by the wage rate.
Under these assumptions, the effect of the minimum wage is quite straightforward:
the introduction of a minimum wage results in unemployment in those labor
markets in which the equilibrium wage rate is below the minimum wage.
This is illustrated in the diagram below:
In the labor market illustrated above, the equilibrium wage
would be w* and the equilibrium level of employment would be L* in the
absence of a minimum wage. When a minimum wage of wmin is introduced,
however, the level of employment falls to LD. Notice that the
quantity of labor demanded exceeds the quantity of labor supplied at this
minimum wage. A total of LS - LD unemployed
workers will be created by the introduction of this minimum wage.
While minimum wage increases generally receive substantial
public support, economists have generally relied on the above analysis
to argue that such legislation will result in an increase in the unemployment
rate in low-wage labor markets. In recent years, however, a series of
studies by David Card, Alan B. Krueger, Lawrence F. Katz, and others have
suggested that small to moderate increases in the minimum wage will have
no adverse effects on unemployment (and may even lead to reduced unemployment).
There are a number of theoretical models that can explain such results.
Among these are:
- monopsony models, and
- efficiency wage models.
In a monopsony labor market, there is a single employer of workers. This
employer faces an upward sloping labor supply curve. Because the cost
of hiring an extra worker (the marginal factor cost) exceeds the wage
rate, a monopsony firm will hire fewer workers than would be hired in
a perfectly competitive labor market. This is illustrated in the diagram
below.
As the diagram above indicates, a profit-maximizing monopsonist
will hire an optimal quantity of labor at the point at which the firm's
marginal revenue product (MRP = the additional revenue associated with
the use of an additional unit of labor) equals the firm's marginal factor
cost (MFC = the additional cost associated with the use of an additional
unit of labor). In this case, the optimal level of employment occurs at
Lm. When this firm hires Lm workers, the labor supply
curve indicates that it must pay a wage equal to wm.
If a minimum wage is introduced into this labor market,
the labor supply curve effectively becomes horizontal at this wage up
to the point at which the minimum wage intersects the supply curve. This
is illustrated in the diagram below. The thicker red line represents the
labor supply curve in the presence of a minimum wage equal to wmin.
Because the wage is constant in this portion of the labor supply curve,
the marginal factor cost is constant and equal to the minimum wage in
this range. Once the labor supply curve starts rising again, the marginal
factor cost once again is above the wage (in the diagram below, this occurs
once the level of employment exceeds Lmin).
If a minimum wage equal to wmin is introduced
into this market, the optimal level of employment for the monopsony firm
will occur at Lmin (since MRP = MFC at this point). Thus, it
is possible that the introduction of a minimum wage will result in both
higher wages and a higher level of employment. If the minimum wage is
set anywhere between wm and w', employment will increase in
a monopsony labor market. A minimum wage equal to w' will result in the
same level of employment as in the monopsony outcome (although with a
higher wage). Employment will fall if the minimum wage is set above w'
in this labor market.
The efficiency wage model suggests that firms that pay workers
a wage above the equilibrium wage will find that the higher pay results
in more productive workers. The higher pay results in less labor force
turnover, lower training costs, and better motivated workers. If the increase
in labor productivity is sufficiently large, an increase in the minimum
wage need not reduce employment.
Much of the controversy surrounds a study conducted by David Card and
Alan Krueger. In this study, Card and Krueger conducted a phone survey
of 410 fast-food restaurants on both sides of the border between Pennsylvania
and New Jersey prior to and after an increase in the state minimum wage
in New Jersey. They found that employment increased by more in New Jersey
in response to the higher minimum wage in this state.
Because of concerns about the Card and Krueger data, the Employment Policies
Institute examined payroll records for 71 fast-food restaurants and found
significant discrepancies between the Card and Krueger data and payroll
records for these firms. They found significantly different results when
their revised data was used for estimation purposes. Critics of the EPI
study argue that the selection process used to generate the Employment
Policies Institute sample appears not to be random (all Pennsylvania observations
are Burger King restaurants owned by a single franchise owner).
Those who believe that increases in the minimum wage will not adversely
affect employment argue that, even if there are some problems with the
data used by Card and Krueger in their study of fast-food restaurants
in New Jersey and Pennsylvania, there is a growing empirical literature
that provides quite similar results. Card and Krueger
present an extensive collection of such studies in Myth and Measurement
(1995).
An issue related to that of a minimum wage is a growing movement for
a "living wage." Living wage proposals suggest that the existing
minimum wage is too low to allow families to exceed the poverty level.
Advocates of this view support "living wage ordinances" that
require the local government to only accept contracts from firms (or,
in some cities, provide assistance to firms) that pay their workers a
wage that is high enough to place the worker above the poverty line. Baltimore
was the first city to adopt such an ordinance in 1994. Under Baltimore's
"living wage" requirement, firms must pay a worker an hourly
wage that will allow a full-time worker to receive an annual income greater
than or equal to the poverty level for a family of three.
One of the reasons why the minimum wage is so often the focus of political
debate is that it is set at a specific nominal value and is not indexed
to inflation. Thus, as inflation occurs, the real value of the minimum
wage declines until Congress decides to pass new legislation. (The highest
real value of the minimum wage was reached in 1968.) Because of this,
it is likely that the debate over the effects of the minimum wage will
continue to remain a significant source of political and economic debate.
Primary Resources and Data
- U.S. Department of Labor, "Compliance Assistance — Fair Labor Standards Act (FLSA)"
http://www.dol.gov/esa/whd/flsa/
The U.S. Department of Labor Fair Labor Standards Act website provides detailed
information on minimum wage law. Among other useful information, this
website contains a discussion of state
minimum wage laws and a history
of changes in the minimum wage laws.
- Almanac of Policy Issues, "Minimum Wage"
http://www.policyalmanac.org/economic/minimum_wage.shtml
This website contains links to a collection of online articles, news
items, data sources, and other information dealing with minimum wage
legislation.
- Economic Policy Institute, "Minimum Wage: A Select Minimum
Wage Bibliography"
http://www.epinet.org/Issueguides/minwage/minwage_select_bib.html
This document contains a useful bibliography of minimum wage articles
appearing in print.
- Economic Policy Institute
http://epinet.org/
The Economic Policy Institute provides policy briefs and research reports
on a variety of labor market issues (including the minimum wage and
living wage ordinances). This Institute tends to provide a relatively
liberal pro-minimum wage viewpoint.
- Employment Policies Institute
http://www.epionline.org
The Employment Policies Institute provides arguments and information
against the minimum wage. One of the useful features of this website
is a statistical breakdown of minimum wage earners by state. (This Institute
has been criticized for adopting a name that is remarkably similar to
that of the long-established Economic Policy Institute.)
- Employment Policy Foundation
http://www.epf.org/
This is the website of one of the most active groups working in opposition
to minimum wage laws. At this site, you will find statistics, research
studies, and other materials that present the case against the minimum
wage.
- Card-Krueger minimum wage data site
ftp://irs.princeton.edu/pub/MINIMUM/
This ftp site contains the data used by Card and Krueger in Myth and
Measurement. This data may be downloaded to replicate the analysis in
this collection of studies. The survey questions used for the New Jersey/Pennsylvania
study are also available at this site.
- Data and Programs for "The Effects of New Jersey's Minimum
Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll
Records" by David Neumark and William Wascher
http://www.msu.edu/~neumarkd/Old/minwage.htm
This web site, provided by David Neumark, contains the data and Stata
programs used in the study by David Neumark and William Wascher. This
data set is an expanded version of the data used by the Employment Policies
Institute.
Different Perspectives in the Debate
- Richard B. Berman, "The Crippling Flaws in the New Jersey
Fast Food Study, 2nd Ed."
http://www.epionline.org/study_epi_njfast_04-1996.pdf
This April 1996 Employment Policies Institute online document critiques
the Card and Krueger New Jersey/Pennsylvania fast-food study. They examine
the Card and Krueger data and find a number of cases in which the data
appears to be seriously flawed. The Card and Krueger study is re-estimated
using payroll records from a
25% subsample of firms in the original study and find adverse employment
effects resulting from the minimum wage. (This study, however, as noted
later by Card and Krueger, relies for its Pennsylvania sample only on
data from a set of Burger King restaurants owned by a single franchisee.)
They also cite evidence from a study conducted by Neumark and Wascher
that relied on an expanded version of the EPI payroll data and also
find an adverse employment effect resulting from the minimum wage increase.
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- David Card and Alan B. Krueger, "A Reanalysis of the New
Jersey Minimum Wage Increase on the Fast-Food Industry with Representative
Payroll Data"
http://papers.nber.org/papers/W6386.pdf
David Card and Alan B. Krueger respond to criticisms of their fast-food
study in this January 1998 National Bureau of Economic Research working
paper. In this later study. Card and Krueger use data collected by the
Bureau of Labor Statistics to examine the effects of the 1992 New Jersey
increase in the minimum wage and the 1996 increase in the federal minimum
wage (this only affected Pennsylvania workers). The findings are consistent
with those in their earlier study. They examine the EPI and Neumark/Wascher
data sets and find that the different results in those two studies appear
to be the result of "a small set of restaurants owned by a single
franchisee who provided the original Pennsylvania data for the 1995 EPI
study." They also find that the EPI and Neumark/Wascher data provides
different employment trends for firms that report their employment on
a weekly, a biweekly or a monthly basis. When an adjustment is made
for this difference, the combined EPI/Neumark-Wascher sample provides
no evidence of an adverse employment effect. The Adobe acrobat viewer plugin
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here.
- Doug Bandow, "Think Tank Wars and the Minimum Wage"
http://www.libertyhaven.com/..../thinktank.shtml
In this April 1999 article, appearing in The Freeman, Doug Bandow provides
a series of arguments against a minimum wage increase. He notes the
existence of apparent flaws in the original Card/Krueger data used in
the New Jersey/Pennsylvania fast-food employment study. Bandow argues
that the Economic Policy Institute has manipulated definitions to make
it appear that a minimum wage increase will benefit low-income households.
- John Schmitt, "Cooked to Order"
http://www.prospect.org/print/V7/26/schmitt-j.html
John Schmitt argues in support of the Card-Krueger study in this June
1, 1996 article appearing in The American Prospect. He notes that many
other studies in the U.S. and the U.K. have found results similar to
those found by Card and Krueger. Schmitt indicates that Richard Bermann,
the executive director of the Employment Policies Institute, has served
as a lobbyist for restaurant companies. He also suggests that Card and
Krueger carefully described the process by which they selected their
sample, while Berman has not revealed the sample selection process used
by the Employment Policies Institute.
- Sheldon Rampton and John Stauber, "Berman & Co.: 'Nonprofit'
Hustlers for the Food and Booze Biz"
http://www.prwatch.org/prwissues/2001Q1/berman1.html
Sheldon Rampton and John Stauber argue that the Employment Policy Institute
has unfairly attacked the work of Card and Krueger. It is suggested
that the EPI's efforts in opposition to the minimum wage is primarily
designed to help maintain low labor costs for R. Berman's restaurant
clients.
- Robert Higgs, "The Madness of the Minimum Wage"
http://www.independent.org/tii/content/op_ed/ahiggsmw.html
Robert Higgs argues against a minimum wage increase in this June 21,
1996 Independent Institute article. His argument is implicitly based
on the assumption of perfectly competitive labor markets. Higgs believes
that a higher wage will inevitably result in reduced employment. He
also notes that most minimum wage workers are single individuals, and
many are teenagers. Thus, an increase in the minimum wage is not an
effective method of reducing poverty.
- Benjamin Zycher, "Minimal Evidence: Flawed Studies Drive
the Call for an Increased Minimum Wage"
http://reason.com/9506/zycher.jun.shtml
In this June 1996 online article, Benjamin Zycher argues against an
increase in the minimum wage. He suggests that the Card and Krueger
fast-food study is flawed due to data problems. Zycher also notes that
the effect of the minimum wage increase might be different in other
industries. He is also concerned that the long-run effects may be different
than the short-run changes captured by the Card-Krueger analysis. Zycher
provides a careful analysis that raises questions about the reliability
of the Card, Krueger, and Katz studies.
- Donald Deere, Kevin M. Murphy, and Finis Welch, "Sense
and Nonsense on the Minimum Wage"
http://www.cato.org/pubs/regulation/reg18n1c.html
Donald Deere, Kevin M. Murphy, and Finis Welch critique the Card and
Krueger analysis in this article appearing in Regulation: The Cato Review
of Business and Government. They argue that economic theory and previous
studies contradict the results of Card and Krueger. The authors cite
statistics that suggest that, over time, the unemployment rate has increased
the most for those workers with the least skills and education when
the minimum wage has increased. They note that it is often difficult
to disentangle the effects of changing labor force participation rates
and changes in other labor market factors from changes in the minimum
wage. The authors provide alternative explanations for the results of
4 of the studies appearing in Myth and Measurement.
- Robert Valetta, "The Minimum Wage"
http://www.frbsf.org/econrsrch/wklyltr/el96-29.html
Robert Valetta discusses the Card-Krueger studies in this October 11,
1996 Federal Reserve Board of San Francisco Economic Letter. As part
of this discussion, he reviews criticisms of these studies and notes
that other recent work has found adverse employment effects resulting
from an increase in the minimum wage. Valetta also provides an overview
of alternative labor market models that would account for the Card and
Krueger results. He notes that some controversy is likely to remain
over this issue, but there seems to be general agreement that a higher
minimum wage will result in inflationary pressures. Valetta notes that
higher prices will reduce much of the benefit that is expected to occur
as a result of a higher minimum wage.
- Thomas R. Michl, "Low-Wage Workers Deserve Pay Raise"
http://www.epinet.org/webfeatures/viewpoints/michl.html
Thomas R. Michl presents an argument for an increase in the New York
State minimum wage in this May 21, 1999 opinion piece that appeared
in the Albany Times Union. He notes that the real wages of low-paid
workers fell substantially in recent years. Michl cites studies that
find little or no adverse employment effects from increases in the minimum
wage.
- Preston J. Miller, "The New Economics of a Minimum Wage
Hike"
http://minneapolisfed.org/pubs/fedgaz/95-10/EDI9510A.cfm
Preston J. Miller discusses the controversy that has resulted from the
Card-Krueger findings. He suggests that their are several problems with
the Card-Krueger study:
- there are some questions about the reliability of the phone survey
data used by Card and Krueger,
- other studies with more reliable data have found contrary results,
- this study focused on only one industry,
- too little time was allowed for firms to respond.
Miller finds the argument concerning monopsony quite weak since there
are many employers in most low-wage labor markets. He argues that,
even if the minimum wage has little or no employment effect, society
should consider the costs of this policy to firm owners and customers.
- Margaret O'Brien-Strain and Thomas MaCurdy, "Increasing
the Minimum Wage: California's Winners and Losers"
http://www.ppic.org/main/publication.asp?i=88
In this May 2000 study, Margaret O'Brien-Strain and Thomas MaCurdy examine
the effect of the 1996 increase in the minimum wage on California's
workers. They find that only a small share of the increase in earnings
goes to households living in poverty. In particular, only 11 percent
of the higher earnings are received by households with children living
in poverty while 34 percent of the additional earnings go to households
in the top 40 percent of the income distribution. The authors also find
that the minimum wage increase resulted in a higher price level. These
higher prices disproportionately affect low-income households, since
low-income households buy more goods produced by low-wage workers. Since
3 out of 4 low-income households in California had no workers who received
higher wages in response to the minimum wage hike, most low-income households
paid higher prices but received no benefits from the higher minimum
wage. O'Brien-Strain and MaCurdy argue that a state increase in the
minimum wage would have a more beneficial effect than a federal increase
on California low-income households since a state increase would not
have as much of an effect on consumer prices.
- David Neumark, Mark Schweitzer, and William Wascher, "Will
Increasing the Minimum Wage Help the Poor?"
http://www.clev.frb.org/Research/com99/0201.pdf
David Neumark, Mark Schweitzer, and William Wascher examine the effects
of the minimum wage on poverty in this February 1, 1999 Federal Reserve
Bank of Cleveland research paper. They argue that a higher minimum wage
will result in:
- a substitution of skilled workers and other factors of production
for unskilled workers,
- higher prices of the product and reduced sales and output, and
- lower incomes for those households living in poverty.
Because of the substitution effect associated with a higher minimum
wage, the authors suggest that the adverse employment effect will be
largest for the least-skilled workers who are most likely to be living
in poverty.
- Douglas K. Adie and Lowell Gallaway, "Review of 'Myth
and Measurement: The New Economics of the Minimum Wage"
http://www.cato.org/pubs/journal/cj15n1-8.html
Douglas K. Adie and Lowell Gallaway provide a critical analysis of Myth
and Measurement in this Cato Journal review. They argue that the theoretical
model underlying this work relies on the work of Richard Lester, who
criticized the relevance of marginal analysis in explaining employment
decisions. Adie and Gallaway suggest that Card and Krueger provide at
best only a weak theoretical basis for their model. They note that questions
have been raised concerning the validity of the data in the fast-food
study. It is suggested that the results of Card and Krueger should be
treated with caution, and not used as a basis for public policy.
- Holly Sklar, "Minimum Wage -- It Just Doesn't Add Up"
http://www.commondreams.org/views01/0829-08.htm
Holly Sklar argues for an increase in the minimum wage in this August
29, 2001 editorial. She notes that the real minimum wage has fallen
dramatically over time and it is not high enough to place recipients
above the poverty level. She suggests that the economy could easily
handle higher minimum wages without any major effects on employment.
- Jim Cox, "The Ugly Truth About the Minimum Wage Law"
http://www.theadvocates.org/library/min-wage.html
Jim Cox argues against an increase in the minimum wage in this 1997
online article. He argues that there will be adverse employment consequences.
Cox suggests that these increases have been allowed to occur despite
the harm inflicted only because those who are harmed "are either
young, illiterate, or among the lowest ranks of the socio-economic ladder."
- Matthew B. Kibbe, "The Minimum Wage: Washington's Perennial
Myth"
http://www.cato.org/pubs/pas/pa106.html
Matthew B. Kibbe provides the basic economic argument against the minimum
wage in this May 23, 1988 Cato Policy Analysis article. It is argued
that teenagers will suffer the most in response to an increase in the
minimum wage. Kibbe also argues that union support the minimum wage
because it reduces competition from low-wage substitutes to union workers.
- Bruce Bartlett, "The Fed and Unemployment"
http://www.townhall.com/columnists/brucebartlett/bb2000821.shtml
Bruce Bartlett argues against the minimum wage in this August 21, 2000
online article. His argument differs from most other arguments against
the minimum wage in that it relies on macroeconomic analysis. He argues
that the Federal Reserve Board bases its policy on its perception of
the "non-accelerating inflation rate of unemployment" (NAIRU).
One problem with this concept is that the value of the NAIRU is not
known with certainty. Bartlett argues that if the unemployment rate
drops below the NAIRU, the Fed will undertake a contractionary policy;
an expansionary policy is adopted by the Fed if the unemployment rate
rises above the NAIRU. He argues, though, that an increase in the minimum
wage will increase the NAIRU. He argues that the reduction in the NAIRU
during the 1980s primarily the result of the real decline in the minimum
wage that occurred during this period. Bartlett suggests that an increase
in the minimum wage will result in a tighter monetary policy, leading
to higher unemployment through induced changes in monetary policy. He
argues that this chain of causality is likely to have a more significant
and adverse effect on economic growth and unemployment than occurs through
the direct microeconomic effects.
- Donald R. Deere, "Don't Raise the Minimum Wage - The Bar
is Already Too High"
http://www.ncpa.org/~ncpa/ba/ba270.html
In this June 9, 1998 National Center for Policy Analysis Brief, Donald
R. Greene argues that the minimum wage harms workers with low levels
of skills. He notes that a relatively small proportion (15%) of low-wage
workers live in the lowest-income families. Deere also observes that
65% of the people living in low-income households are not working while
only 23% in the highest income households are not working. He argues
that the main causes of poverty are low levels of education and skills.
- Walter J. Wessels, "The Effect of Minimum Wages on the
Labor Force Participation Rates of Teenagers"
http://www.epionline.org/study_wessels_05-2001.pdf
In this June 2001 online study, Walter J. Wessels investigates the effect
of the minimum wage on the labor force participation rate for teenage
workers. He notes that employers may be expected to reduce fringe benefits,
offer less on-the-job training, and hold higher expectations for employee
productivity after an increase in the minimum wage. Reductions in turnover
may be expected to reduce the number of job vacancies and make job search
less productive. These changes may reduce the utility associated with
working. Wessels finds that increases in the minimum wage tend to reduce
the labor force participation rate for teenagers. He argues that the
reduction in labor force participation indicates that minimum wage increases
makes work less desirable for teenagers. The Adobe acrobat viewer plugin
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- Anne Beeson Royalty, "Do Minimum Wage Increases Lower
the Probability that Low-Skilled Workers Will Receive Fringe Benefits?"
http://www.jcpr.org/wpfiles/royalty_2001update.pdf
Anne Beeson Royalty examines the effect of minimum wage increased on
fringe benefits in this August 2000 working paper. Using variation in
minimum wage laws across states, she finds that low-wage workers in
states with higher minimum wages have a lower probability of being eligible
for pensions and health benefits. Royalty argues that these changes
in total compensation partly offset the effect of an increase in the
minimum wage and reduce the adverse employment effect. This change in
the mix of compensation, however, reduces the gain that individuals
may receive from a higher minimum wage. The Adobe acrobat viewer plugin
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- Richard K. Vedder and Lowell E. Gallaway, "Does the Minimum
Wage Reduce Poverty?"
http://www.epionline.org/study_vedder_06-2001.pdf
In this June 2001 study, Richard K. Vedder and Lowell E. Gallaway examine
the effect of the minimum wage on poverty rates. They find, using an
extensive array of empirical tests, that the minimum wage is ineffective
in reducing poverty in the aggregate as well as for a variety of subgroups
and regions in the population. Vedder and Gallaway note that poverty
is most often experienced by nonworkers. They suggest that the most
effective strategy in reducing poverty is to focus efforts on finding
employment for individuals living in poverty. The Adobe acrobat viewer
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- Marianne E. Page, Joanne Spetz, and Jane Millar, "Does
the Minimum Wage Affect Welfare Caseloads?"
http://www.jcpr.org/wpfiles/Page_WP.pdf
Marianne E. Page, Joanne Spetz, and Jane Millar examine the effect of
the minimum wage on welfare caseloads in this September 1999 research
paper. They note that a higher minimum wage may come at the expense
of employment. Under this tradeoff, an increase in the minimum wage
may reduce welfare caseloads only if the demand curve for relatively
unskilled workers is relatively inelastic. They observe that this is
a significant issue since a large proportion of low-income households
are headed by workers who receive the minimum wage. In this study, the
authors rely on variations in the minimum wage across states to examine
the effect of minimum wage differences on employment and welfare caseloads.
Their estimates suggest that a 10% increase in the minimum wage is expected
to result in a one- to
two-percent increase in welfare caseloads. It is argued that other strategies,
such as an expansion in the earned income-tax credit, may be more effective
than a higher minimum wage in providing assistance to low-wage workers.
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- Ed Lazere, "New Findings from Oregon Suggest Minimum Wage
Increases Can Boost Wages for Welfare Recipients Moving to Work"
http://www.cbpp.org/529ormw.htm
Ed Lazere, in this May 29, 1998 report, examines the effect of the minimum
wage increases in Oregon on welfare recipients. He finds that the introduction
of higher state minimum wages in Oregon in 1997 and 1998 reversed the
downward trend in the starting wage of recipients who were leaving welfare.
Lazere finds no evidence of a reduction in employment resulting from
the increase in the minimum wage.
- Oren M. Levin-Waldman, "The Minimum Wage Can Be Raised:
Lessons from the 1999 Levy Institute Survey of Small Business"
http://www.levy.org/docs/pn/99-6.html
Orem M. Levin Waldman reports on a 1999 Levy Institute survey of small
businesses in the 1999 Jerome Levy Economics Institute Policy Note.
he notes that over 3/4 of the surveyed firms indicated that they would
not change their employment decisions if the minimum wage rose to $6.00
per hour. It is noted that the disemployment effect would be relatively
small, but rises substantially if the minimum wage were to increase
to $7.25 per hour.
- Oren M. Levin-Waldman, "Do Institutions Affect the Wage
Structure?"
http://www.levy.org/docs/ppb/ppb57.pdf
In this 1999 Jerome Levy Economics Institute Public Policy Brief, Oren
M. Levin-Waldman examines the effect of minimum wage laws, right-to-work
laws, and unionization on the wage structure. Levin-Waldman notes that
income inequality has increased in recent years and argues that part
of the reason for this is a reduction in the real value of the minimum
wage (combined with a reduction of union power and the expansion of
employment in states with right-to-work laws). He finds that the states
with the lowest unionization rates and with right-to-work laws have
the largest proportion of workers receiving wages close to the minimum
wage. Levin Waldman argues that increases in the minimum wage would
be an effective means of reducing income inequality. The Adobe acrobat
viewer plugin is required to view
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- Employment Policy Foundation, "Increasing the Minimum
Wage Costs Jobs and Increases Poverty"
http://www.epf.org/ebyte/eb990510.htm
This online May 10, 1999 document provides several arguments against
the minimum wage. It is noted that only a small proportion of individuals
living in poverty receive the minimum wage. This article also suggests
that the high unemployment rate for black teenagers is the result of
the minimum wage. A study is cited that finds that increases in the
minimum wage raise the proportion of households living in poverty.
- Jill Jenkins, "Minimum Wages: Many Poor are Not Winners"
http://www.epf.org/ff/ff000112/ff0001121.htm
Jill Jenkins argues against an increase in the minimum wage in this
January 12, 2000 Employment Policy Foundation article. She notes that
most minimum wage workers tend to have low levels of education and limited
work experience. These workers already have higher than average unemployment
rates. Jenkins argues that these workers are most vulnerable to the
higher unemployment that she believes will result from a higher minimum
wage. She notes, that while some workers benefit from a higher minimum
wage, these workers tend to be young workers from high-income families,
not the low-income households who are the primary target of the proposed
minimum wage increase. Jenkins suggests that an increase in the Earned
Income Tax Credit is a more effective remedy for low-income households.
- Joint Economic Committee, "The Case Against a Higher Minimum
Wage"
http://www.house.gov/jec/cost-gov/regs/minimum/case.htm
This May 1996 report provides a compilation of earlier Joint Economic
Committee reports dealing with the minimum wage. These reports contain
critiques of the Card-Krueger studies and provide some statistics on
minimum wage recipients.
- Coalition on Human Need, "Minimum Wage"
http://www.chn.org/minimumwage/
The Coalition on Human Need provides arguments in support of a higher
minimum wage on this website. Information on the status of current minimum
wage legislation is also provided at this site.
- Jared Bernstein, Heidi Hartmann, and John Schmitt, "The
Minimum Wage Increase: A Working Woman's Issue"
http://epinet.org/Issuebriefs/Ib133.html
Jared Bernstein, Heidi Hartmann, and John Schmitt argue, in this September
16, 1999 study, that working women will be the primary beneficiaries
of an increase in the minimum wage. They suggest that 58% of the proposed
minimum wage increase would be received by female workers. The authors
note that the real minimum wage has fallen relative to the median wage
of working women. They note that recent empirical evidence suggests
little or no adverse employment effect associated with an increase in
the minimum wage and believe that this would be an effective tool in
reducing the poverty experienced by households headed by low-wage working
women.
- Marc T. Law, "The Economics of Minimum Wage Laws"
http://oldfraser.lexi.net/publications/pps/14/
In this online document, Marc T. Law argues against an increase in the
minimum wage in Canada. He suggests that minimum wage laws result in
higher unemployment, reduce training and fringe benefits, and do not
reduce poverty.
- D. Mark Wilson, "Raising the Minimum Wage: Rhetoric v.
Reality"
http://www.heritage.org/Research/Labor/EM590.cfm
D. Mark Wilson argues against an increase in the minimum wage in this
April 23, 1999 Heritage Foundation Executive Memorandum. He argues that
a higher minimum wage would:
- not have a direct effect on poverty,
- make it more difficult to move people from welfare to work,
- reduce the amount of job training received by workers,
- raise teenage unemployment rates, and
- encourage teenagers to drop out of school.
- Jared Bernstein and John Schmitt, "The Impact of the Minimum
Wage"
http://www.epinet.org/briefingpapers/min_%20wage_bp.html
Jared Bernstein and John Schmitt provide arguments in support of a minimum
wage increase in this June 2000 Economic Policy Institute Briefing Paper.
They argue that recent evidence suggests there is little or no loss
in employment as a result of minimum wage increases. Statistics are
cited that suggest that most of the benefits of a minimum wage increase
will be received by low-wage households.
- AFL-CIO, "Talking Points: Raising the Minimum Wage"
http://www.aflcio.org/issuespolitics/minimumwage/talkingpoints.cfm
The AFL-CIO minimum wage website contains statistics on the recipients
of the minimum wage, the real value of the minimum wage and arguments
supporting an increase in the minimum wage. Arguments for living wage
ordinances are also provided on this site.
- Employment Policy Foundation, "Minimum Wage Fact Sheet"
http://www.epf.org/press/pr991108.htm
This November 8, 1999 press release raises objections to many of the
arguments raised in an AFL-CIO report on the minimum wage. It is observed
that most minimum wage workers are under 25 years old and are not generally
heads of households. Charts and statistics dealing with minimum wage
recipients are provided on this page.
- Raymond J. Keating, "Minimum Intelligence Against the
Minimum Wage"
http://www.sbsc.org/LatestNews_Action.asp?FormMode=CyberColumn&ID=87
Raymond J. Keating provides arguments against an increase in the minimum
wage in this March 2, 2000 online Small Business Survival Committee
article. He argues that an increase in the minimum wage will have the
largest adverse effect on small businesses. Keating believes that an
increase in the minimum wage will result in reduced employment and the
closing of many small businesses.
- Thomas I. Palley, "The Role of Institutions and Policies in Creating High European Unemployment:
The Evidence "
http://www.levy.org/docs/wrkpap/papers/336.html
Thomas I. Palley, Assistant Director of Public Policy for the AFL-CIO, investigates the causes of European unemployment
in this August 2001 Levy Institute working paper. He finds that the major causes of unemployment are macroeconomic in nature and
are not the result of minimum wage laws or unionization. Palley argues that unions and minimum wage laws play an important role
in reducing income inequality.
- Kaushik Basu, Garance Genicot, and Joseph E. Stiglitz, "Household
Labor Supply, Unemployment and Minimum Wage Legislation"
http://www.worldbank.org/html/dec/Publications/Workpapers/wps2000series/wps2049/wps2049.pdf
Kaushik Basu, Garance Genicot, and Joseph E. Stiglitz provide a theoretical
model of minimum wage effects in this World Bank working paper. This
model allows for the possibility that families will send additional
workers to the labor market when there is inadequate demand (to insure
against the loss of income by other household workers in the event of
unexpected unemployment). In a somewhat surprising result, they show
that a minimum wage that is set below the market equilibrium can result
in a reduction in the market wage and a rise in unemployment. (This
paper requires a reasonably high level of mathematical sophistication.)
The Adobe acrobat viewer plugin is required to view this document. You
may download this viewer by clicking here.
- Association of Community Organizations for Reform Now (ACORN),
"Living Wage Resource Center"
http://www.livingwagecampaign.org/
This website contains detailed information on existing living wage ordinances,
a history of living wage ordinances in the U.S., summaries of studies
that indicate positive effects from living wage ordinances, and links
to related web sites. This is a good starting point as a source for
arguments in favor of a living wage ordinance.
- John Foster-Bey, Mark Rubin, and Kenneth Temkin, "Earning
a Living Wage: Metro Differences in Opportunity and Inequality for Adult
Males with Low Education Levels"
http://www.urban.org/pdfs/living-wage.pdf
John Foster-Bey, Mark Rubin, and Kenneth Temkin examine differences
in labor markets for low-skilled workers in alternative metropolitan
areas. The authors note that, despite the economic growth of the 1990s,
job opportunities for workers with low levels of education declined
in some metropolitan areas. In general, they find that employment prospects
have declined for males who do not possess a college degree. The Adobe
acrobat viewer plugin is required to view this document. You may download
this viewer by clicking here.
- Karen Kraut, Scott Klinger, and Chuck Collins, "Choosing
the High Road: Business That Pay a Living Wage and Prosper"
http://www.responsiblewealth.org/living_wage/Living_Wage_Report.pdf
Karen Kraut, Scott Klinger, and Chuck Collins argue that the real value
of the minimum wage has fallen substantially over time. This article
described the origin of "living wage" ordinances and provides
anecdotal evidence of benefits to firms from paying a "living wage."
The main benefits are claimed to be reductions in turnover and absenteeism
and improvements in worker morale and productivity. The Adobe acrobat
viewer plugin is required to view this document. You may download this
viewer by clicking here.
- David Neumark and Scott Adams, "Do Living Wage Ordinances
Reduce Urban Poverty?"
http://papers.nber.org/papers/W7606.pdf
David Neumark and Scott Adams investigate the effect of living wage
ordinances on urban poverty in this March 2000 working paper. They find
that living wage ordinances raise wages for low-wage workers, but have
negative effects on employment and hours worked. Overall, however, they
find that these ordinances tend to reduce urban poverty. The Adobe acrobat
viewer plugin is required to view this document. You may download this
viewer by clicking here.
- Jared Bernstein, "Higher Wages Lead to More Efficient
Service Provision"
http://epinet.org/Issueguides/livingwage/alexlivwg.html
Jared Bernstein discusses the efficiency effects of living wage ordinances
in this August 2000 online document. He argues that living wage ordinances
have no substantial negative effects on a local economy since a small
share of the labor force is affected and the impact in a typical firm's
costs is relatively small. Bernstein cites empirical studies that suggest
that living wage ordinances have no significant negative effects. He
suggests that this is the result of "lower turnover, vacancy, and
accident rates and improvement in the quality of the low-wage workforce.
all of which lead to higher quality provision of goods and services."
Bernstein argues in support of living wage ordinances since they reduce
income inequality and reduce dependence on welfare programs.
- Rob Valetta, "Living Wage Ordinances"
http://www.frbsf.org/econrsrch/wklyltr/wklyltr99/el99-31.html
Rob Valetta examines the economic effects of living wage ordinances
in this October 15, 1999 Federal Reserve Bank of San Francisco Economic
Letter. He discusses the possible adverse effect of these ordinances
on employment. Valetta argues, though, that any effect on employment
is likely to be small since most of the cost of implementing the program
is likely to be borne by local taxpayers. He notes that a living wage
ordinance is likely to not affect the wages of most low-wage workers.
- N. Gregory Mankiw, "The Cost of a 'Living Wage:' We Can't
Ignore Law of Supply and Demand"
http://post.economics.harvard.edu/faculty/mankiw/columns/bglobejune01.html
In this June 24, 2001 Boston Globe article, N. Gregory Mankiw discusses
the possible adverse employment effects associated with the introduction
of a "living wage" policy at Harvard University. He argues
that the Card-Krueger study is controversial because of data and methodology
issues and that most other studies have found adverse employment effects
resulting from a mandated increase in the wage. Mankiw suggests that
the Earned Income Tax Credit is a more effective method of reducing
poverty.
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