Minimum Wage Increases Promote Jobs: Study

Increasing the minimum wage does not aggravate unemployment, despite conventional wisdom to the contrary, a new study shows (hat tip to Economix).

Even though some economists have argued that paying workers more tends to discourage hiring, wage increases actually leave employment unaffected or even improved, argues the study, authored by Arindrajit Dube of the University of Massachusetts Amherst, T. William Lester of UNC Chapel Hill and Michael Reich of UC Berkeley. "We actually found absolutely no evidence of any kind of disemployment effect -- in other words, jobs being killed -- when the minimum wage went up," Dube said on the Real News Network. "The answers were somewhat surprising."

In her Economix blog post, Amherst professor Nancy Folbre gives a brief history of the minimum wage debate, saying the consensus -- that increasing the minimum wage kills jobs -- began to shift after 1994 when two economists, David Card and Alan Krueger, looked at New Jersey and Pennsylvania, which had relatively high and low minimum wages. The two economists found no real difference in fast-food unemployment between the areas.

The new study, as Dube told Real News Network, takes Card and Krueger's methodology and "generalize[s] and sharpen[s]" it, looking at a larger time period and at contiguous counties (pairs with differing minimum wage laws) across the nation. In some cases, the study found, a higher minimum wage actually promotes employment, since it reduces the employee turnover rate.

If enough businesses in a region follow a minimum wage rule, Dube added, the cost to employers can be offset by slightly higher prices. And there's no evidence, he said, that customers drive to neighboring cities or states to buy a burger in a lower-wage zone, where the price might be a few pennies less.

"All of these other channels are also at play, besides simply the so-called law of demand, that if wages rises, jobs must fall," he said.

READ the study below:

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Comments

[holyghostie]

08:04 PM on 11/02/2010

The Republicans will claim that this report is invalid because it was done by College professors from liberal arts colleges. They only recognize studies done from Manufacturers, Insurance companies,Trade groups, and Liberty, Oral Roberts, and Bob Jones Universities.

[TonyCInSaTx]

01:35 PM on 11/02/2010

This makes sense to me; I've been in business for 30 years and employed minimum wage workers. I don't fire them if the minimum wage goes up, because I don't employ anybody I do not **need** to serve my customers! I raise my prices, or if my competition won't let me do that, I will just earn less profit for awhile. In the meantime, the minimum wage employees make a little more money, and they are going to spend it, and that should create new demand for whatever products and services they buy with it, and that will presumably create new jobs to produce those products and services.
Why do people think I would employ people I could get by without? If the minimum wage goes up next year and I could fire somebody then to cover the increased cost of wages, common sense says I should fire them today and pocket a year's worth of their wages. The reason I don't do that is because I am already at "just enough" to get all the work done, if I fire somebody I will end up with irritated customers and LESS business and profits. That's the REAL economics of running a business.

[caymen]

05:22 PM on 11/02/2010

Nicely said, and I hope your business continues to be successful. Faned!

[oilfield]

11:16 PM on 11/02/2010

it works for a while until it starts to affect exports.....or your business crosses the price point where it is not purchased anymore. i havent found too many folks that i would hire that would work for minimum wage....we go with the better paid more experienced folks route. i can see where a lower minimum wage would benefit high school kids and actually someone hiring them....if it gets too expensive you just as soon not hire them.

[LibertyRoy]

12:35 AM on 11/02/2010

This is so lame I can hardly stand it. Think about it logically..... if raising the MW increases employment... then raise it to $100/hour and there should be full-employment!!!

[axt113]

02:08 AM on 11/02/2010

Ok, but then a loaf of bread would be $60

I think you need to understand economics better, minimum wage won't kill employment, but raising wages too much will result in inflation, what you need to do is raise wages enough to give people a living wage, but not enough to exacerbate inflation

[LibertyRoy]

02:33 AM on 11/02/2010

I know economics 10000000x more than you do. You just believe everything shrimps like Robert Reich spoon feed you.

[oilfield]

11:23 PM on 11/02/2010

if you give the bottom more money there will be inflation either way.

[BigPictureReg]

10:24 PM on 11/02/2010

Sure, Einstein. Try putting 100# of air in your tires instead of 32 and see if your car rides better.
And, as for your next comment, just what kind of axe do you have to grind with Reich. Is his name mentioned in this article? I'll answer that for you - NO.

No bias in your position, huh!

[joeneri]

12:24 AM on 11/02/2010

Gee, Logic.

[So-called-bob]

08:10 PM on 11/01/2010

If you want to modify behavior for the long term you use positive re-enforcement. This fact was proven by B.F. Skinner. Works on dogs, kids, employees and sometimes a spouse. Doesn't work on cats.

[SmileAndActNice]

08:06 PM on 11/01/2010

Is this really surprising to anybody? Seriously? If you came out of the right womb you can get a rich guy to give you a great job for no reason. But for the vast majority of us the rich guy gives you a job for one reason and one reason alone.

The revenue generated by your labor is significantly greater than the money you are being paid for your labor.

That is the beginning, middle, and end of why you have that job. It is the alpha, it is the omega.

Now rich guys want the difference between the money you earn for them and the money they pay you to be as large as possible. For obvious reasons.

But they aren't actually going to fire you just because the delta shrank - no matter how much they posture and threaten and carry on - unless it actually goes negative and you are costing more than you are providing. And in some cases not even then since they might raise prices to get back positive again.

Minimum wage jobs almost always involve a HUGE profit delta that aren't even remotely in danger of going negative in response to an increase. Meanwhile, increasing the buying power of the poorest people creates new demand and thus *new jobs*.

[SmileAndActNice]

08:19 PM on 11/01/2010

Now of course there are sane limits to everything. Just like cutting taxes isn't always good, neither is raising the minimum wage always good.

It is a way to stimulate the economy because it gets money in the hands of people who will spend money. So it is a tool to consider using when you want to stimulate the economy. But you can't use it if the employers of minimum wage laborers are either:

a - working with razor thin margins in an industry that can't raise its prices Such that they honestly can't afford the increase.
- - * Note they will ALWAYS claim this to be the case as a matter of self interest. Get a third party to ascertain this. Ignore their worries about local competition because an across the board increase will make all their competitors have to raise prices too keeping the playing field level.

b - Can respond to the increase by off shoring their labor.
- - * Note - We've pretty much lost all the minimum wage jobs that can be off shored. We are left with service industry jobs like fast food that simply can't. Nobody is driving to Tijuana for a burger.

So now is definitely the time to do so.

[procrustes13]

05:05 PM on 11/01/2010

Studies of chimpanzees show that the chimpanzees that are not rewarded will lose interest in their work. It's the same with people. Pay people nothing and they'll do the minimum. Paying people nothing is a recipe for getting nothing. I know the conservatives will reply "Threaten them with death" but that changes nothing - you'll get shoddy work.

[oilfield]

06:28 PM on 11/01/2010

i dont agree with pay people nothing and they'll do the minimum....pay people well and they will still do the minimum....pay some nothing and they'll do the maximum....and then their next employer will pay them well.

[joeneri]

12:34 AM on 11/02/2010

What? What are you talking about?

[Mishmashthots]

01:46 AM on 11/02/2010

How you treat people and what you expect for them is also very important to how they perform. Pay is a significant part of that equation, but not the only part.

[spoonerrothbard]

04:07 PM on 11/01/2010

Teenage unemployment is above 50 percent. We' be seen numerous entry level positions vanish over the decades, like the kid who checks your tire pressure when you fill up your tank, or the kid that actually pumps your gas.

[kwyang]

04:20 PM on 11/01/2010

I'm not sure those positions were ever that necessary to begin with. I mean, it's half a step up from "guy who pushes buttons for you in the elevator." Quaint, but eh, I have arms and can do it myself. Sometimes society just moves past a certain type of job, and I don't think there's anything wrong with that. Like all the grocery store clerks who were driven into obsolescence by the supermarket.

[oilfield]

06:25 PM on 11/01/2010

we still have an elevator person at the courthouse....the elevator is so old that it is a necessity. income is income....and kids need a place they can prove that they can manage to show up every day for a period of time longer than a week.

[Mishmashthots]

01:47 AM on 11/02/2010

We don't have full service gas stations where I've lived - not for many, many years.

[Reddogtcb]

03:44 PM on 11/01/2010

We need the 90% tax bracket back. When the top bracket was high, it didn't cost the companies but 10 cents on the dollar to invest in quality employees, infrastructure, company health care, and the like. Now with the top bracket is so low that dynamic is gone.

[kwyang]

04:11 PM on 11/01/2010

Wait, what? I'm not sure this comment made any sense to me. How does it cost the company less to hire people when income taxes were high? It's not like they can write off the taxes their employees pay as their own expense.

Not to mention the historical reality behind why we got rid of the 90% tax bracket. Namely: nobody paid it. If you made enough money to get in there, you were rich enough to hire accountants and lawyers to get you out via a loophole or creative investments. It wasn't until they lowered it to 30%ish that people started doing the math and realizing sometimes it may cost less to pay the tax than hire the professionals. You can wish for a loophole-free tax law, but good luck finding me an example of that, ever, in the history of taxation.

[JNarragansett]

04:19 PM on 11/01/2010

Back during the years when we had those 90% tax brackets, tax receipts averaged 17.5% of GDP. The last ten years, tax receipts averaged 17.6% of GDP. People change their behavior in response to tax rates, and high rates do more to keep people from getting rich than they tax the rich into the middle class.

[SmileAndActNice]

08:29 PM on 11/01/2010

You wind up with more actual money in tax reciepts at 17.5% than you do at 17.6% if it is 17.5% of a bigger pie that is growing faster. Our largest gains in GDP from year to year were all during the 90% highest marginal days.

What's really striking btw when you look at the data is how little correlation there is between the two over time. But our biggest spikes were during high marginal rates and it has slightly trended down as our rates went down.

http://img.slate.com/media/86/marginalGrowth.jpg

* Note - we had 7 tax brackets then, not 3. So if you are in the highest now you probably wouldn't be then.

[TeaForMe]

02:40 PM on 11/01/2010

Wow. All the genius economists here calling for salary caps need a history lesson on wage controls. Want to know exactly how we got into the employer-provided insurance mess? Go ahead, google it.

[PartyPartyParty]

02:10 PM on 11/01/2010

Does this mean the Nobel Committee will ask Diamond and Mortenson to give their 2010 economics prize back? One of the things Doamon and Mortenson claimed in their prize-winning w*rk was that higher unemployment benefits lead to higher unemployment.

http://nobelprize.org/nobel_prizes/economics/laureates/2010/press.html

(Please note; The summary in the link above does not include my statement about unemployment benefits, but the summary of the actual research does.)

Or....could it be that the Nobel committee awards prizes for studies that confirm conventional wisdom?

[kwyang]

04:16 PM on 11/01/2010

This is a study on the effects of minimum wage on unemployment, not the effect of unemployment benefits on unemployment, two seemingly similar but not necessarily correlated subjects. Not to mention one study to the contrary does not invalidate all previous studies in a scientific field. I mean, I'm sure there's studies out there saying global warming doesn't exist, but there's still scientific consensus on that point. Hell, someone probably published a study about how dinosaur fossils were planted six thousand years ago after Jesus rode them out of the Garden of Eden. It's not necessarily going to change our understanding of geology and biology.

Science is messy and imperfect, so using individual scientific studies to prove some sort of political point is almost inevitably misleading.

[PartyPartyParty]

04:27 PM on 11/01/2010

Did you read the entire study?

[Butquestioning]

04:57 PM on 11/01/2010

The study you provide also says that higher unemployment benefits provide a better fit in the jobs people take. It gives the unemployed job candidate a chance to find work that is more in line with what they are trained to do and helps keep people employed longer after finding work...the message give is countered by that argument and the conclusion is that higher unemployment benfits are better than lower benefits...overall.

[rain33]

12:22 PM on 11/01/2010

minimum wage doesn't jobs its corporations for being greedy and not paying workers a decent wage. if tea baggers gets in, they will eliminate it therefore employers can pay you want what amount that they think you deserve. wake up voters and VOTE!

[clearmoments]

12:29 PM on 11/01/2010

Agreed. Lets make minimum wage $10/hr and peg it to inflation and cost of living. An employer doesn't want to hire someone, some other employer will. Eventually in order stay solvent the executives must choose having the necessary workers to produce over their own pay. If an employer doesn't want to pay its employees a decent living wage they deserve to fail. Or as I've suggested before, lets peg the top earners pay to a ratio of the minimum salary at the company.

[rain33]

12:40 PM on 11/01/2010

thank u for agreeing with me!

[Chris]

02:07 PM on 11/01/2010

20k is a decent wage? Last I checked that qualified you for government assistance (granted last I check was when i graduated college and was told I qualified for it).

[Skeptical Patriot]

12:12 PM on 11/01/2010

Did anyone actually look at the study? This headline (as is typical of Huffpost) shows virtually no connection to the study. Measuring the effect of minimum of wage impact on fast food joints. It always shocks me how poor the quality of reporting done by the people of HuffPost.

[clearmoments]

12:19 PM on 11/01/2010

That is true and I also think the title might be inappropriate. But those most affected by minimum wage policy are fast food workers and other low paying jobs, so perhaps the study is pretty appropriate.

[vippy]

12:38 PM on 11/01/2010

Affects all of food and retail employees. Think about the money Walmart will use to grease the politicians! However, if they want to do away with social security, etc. they need to really increase minimum wage and then ban jobs who only offer "intermittent hours." No one can make a living working 3 to 19 hours a week.

[PartyPartyParty]

03:07 PM on 11/01/2010

I think you're right about the study's being appropriate.

The title of a report rarely encompasses everything discussed in the report, which is why we can't jump to conclusions on either a headline or the title -- to do that, a title and a headline would have to be the length of the introduction.

[PartyPartyParty]

02:10 PM on 11/01/2010

Did you actually look at the study, or are you critiquing the headline?

[Timma]

11:59 AM on 11/01/2010

Well golly...who'ld a thought offering people a little bit of hope, a ray of sunshine would actually improve a person's outlook!?

[tacevad]

11:14 AM on 11/01/2010

oh noes!!!!!! but but those pesky minimum wage increases cut into bonus money!

[clearmoments]

12:16 PM on 11/01/2010

Another solution might be to cap CEO pay at some multiple of the companies minimal starting salary.

[rain33]

12:23 PM on 11/01/2010

right on! eliminate ceo pay coz they aren't doing anything but signing papers and having business lunches.

[tacevad]

12:34 PM on 11/01/2010

I disagree with capping anyone's salary, as arbitrary caps are against my view of America. I do not begrudge anyone making as much money as they want , however I am a huge backer of much higher tax rates the higher the income.The fact that once you reach a certain level of income your rate remains the same forever is ludicrous. Hand in hand with that should go closure of all tax loopholes both for private and corporate entities.