Higher Minimum Wages Can Result in “Reduced Hours Worked”

(p. A17) Researchers who support raising the minimum wage often advocate a “close comparison”—using an area geographically nearby. The classic in this genre is the 1994 study of the fast-food industry by David Card and Alan Krueger. The minimum wage had been raised in New Jersey from $4.25 to $5.05, but had stayed flat in Pennsylvania. The two economists surveyed fast-food restaurants on either side of the state border and actually found sharp job gains in New Jersey.

I’m on record, in a 2000 paper, as arguing that the Card-Krueger study was based on flawed data. But other researchers using the “close comparison” method, such as Michael Reich at Berkeley, also have generally found that a higher minimum wage does not cause job losses. Those studies have fed into rosy policy reports saying that a $15 minimum wage would help workers with little downside.

Critics say these studies do not convincingly control for shocks to the low-skill labor market. Moreover, comparing across state borders is inherently difficult. Perhaps politicians in one state felt comfortable raising the minimum wage because the labor market there was already strong, while the other state was struggling. In that case, job losses from the higher minimum wage could be masked by the broader trend.

. . .

The dispute over methodology explains the importance of this summer’s research on Seattle’s minimum-wage experiment. The city’s wage floor, previously about $9.50 an hour, has been raised to $13 and is on its way to $15. A comprehensive study by academics at the University of Washington estimated that the higher minimum “reduced hours worked in low-wage jobs by around 9 percent.” Consequently, earnings for these employees actually dropped “by an average of $125 per month.”

What’s especially inconvenient for minimum-wage proponents is that the Seattle study used a “close comparison” method similar to the one they have favored for years. The authors of the study compared workers in Seattle with those in other metropolitan areas in Washington, like Olympia, Tacoma and Spokane.

For the full commentary, see:

David Neumark. “The $15 Minimum Wage Crowd Tries a Bait and Switch.” The Wall Street Journal (Thursday, Sept. 26, 2017): A17.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Sept. 25, 2017, and has the same title as the print version.)

Newmark’s comment on the Card and Krueger paper, mentioned above, is:

Neumark, David, and William L. Wascher. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment.” American Economic Review 90, no. 5 (Dec. 2000): 1362-96.

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