South-Western College Publishing - Economics  

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. The Adobe acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.
  • 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 is required to view this document. You may download this viewer by clicking 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 is required to view this document. You may download this viewer by clicking here.
  • 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 is required to view this document. You may download this viewer by clicking here.
  • 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 plugin is required to view this document. You may download this viewer by clicking here.
  • 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. The Adobe acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.
  • 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 this document. You may download this viewer by clicking here.
  • 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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