January 31, 2014

More Evidence on the Minimum Wage

In my last post, I offered a quick summary of the evidence regarding the impact raising the minimum wage would have on jobs, poverty, and economic growth. Naturally, President Obama's focus on the minimum wage this week has generated a lot of discussion in the blogosphere. Here's a quick summary of four particularly noteworthy posts.

Alan Manning at the London School of Economics has two excellent posts on the minimum wage. The first points out that the weight of current empirical research indicates that raising the minimum wage won't cost jobs. So why hasn't this conclusion sunk in? 
In spite of this accumulating weight of empirical evidence, it is still very common to find economists falling back on the argument that a minimum wage must cost jobs because demand curves for labor inevitably slope downward. Faced with a conflict between the evidence and 20th-century economic models, they reject the evidence rather than the theory – not an ideal template for scientific endeavor. But there are, in fact, uncomplicated theoretical reasons why the minimum wage set at the levels seen in the United States has little or no effect on employment. Hence the problem may be with the economics all too often taught as dogma. [emphasis added]
His second post offers a concise history of the minimum wage and points out that it is low relative to other OECD nations.

Jared Bernstein at the Center for Budget and Policy Priorities covers much of the same ground I did in my earlier post. His key point:
The question of whether raising the minimum wage reduces employment for low-wage workers is one of the most extensively studied issues in empirical economics.  The weight of the evidence is that (1) for minimum wage levels in the range now being discussed, such impacts are small, and (2) minimum-wage increases of the size enacted in the past, and under the proposals now being discussed, are a net benefit to low-wage workers as a group.  Raising the minimum wage also would modestly lower poverty and help push back against rising inequality.
Finally, John Patty has a post at the Math of Politics that clears up misconceptions about the number of workers who would be affected by a minimum wage increase. Not only would workers making $7.25 or less benefit; those making $7.26 to $10.09 would also see a wage increase. How many people is that?
The Occupational Employment Statistics Query System, provided by the U.S. Bureau of Labor Statistics, provides a different picture of how many people would be impacted by a change in the federal minimum wage to $10.10/hr.

The most recent data, from May 2012, is displayed at the end of this post.  The points I’d like to quickly point out are as follows:
  • In Food Preparation and Serving Related Occupations, 50% of 11,546,880 workers receive less than $9.10/hr, and 75% receive less than $11.11/hr.  Thus, somewhere around 62.5% of these workers, or about 5.75 million people would receive a higher wage.
  • In Sales and Related Occupations, 25% of 13,835,090 workers receive less than $9.12/hr, and 50% receive less than $12.08/hr.  So, conservatively, about 3.5 million people would receive a higher wage.
  • In Transportation and Material Moving Occupations, 25% of 8,771,690 workers receive less than $10.06/hr.  Thus, over 2.1 million people would receive a higher wage.
  • In Healthcare Support Occupations, 25% of 3,915,460 workers receive less than $10.03/hr.  That’s nearly a million people who would receive a higher wage.
  • Overall, 10% of all workers (across all industries) receive an hourly wage lower than $8.70/hr, and 25% of all workers receive an hourly wage lower than $10.81/hr.  A rough estimate, then, is that at least one out of every six workers would receive a higher hourly wage if the federal minimum wage were raised to $10.10/hr. To put that in absolute terms:
Over 21,500,000 Americans would receive a higher wage.


  1. Michael Saltsman, research director for the Employment Policy Institute, recently wrote an article for the Wall Street Journal about technology replacing minimum wage workers. For instance, he cites tablets that replace order takers at fast food restaurants. This being done to reduce costs while maintaining a similar customer experience. Do you see this as an issue moving forward? Will increases in minimum wage lead to increases in job displacing technologies? I would make a joke about Rise of the Robots but I'll refrain for now.

    1. I think the incentive for businesses to replace low-wage earners with technology is present regardless of an increase in the minimum wage. A successful business is always looking for ways to reduce costs, increase sales, and increase profits. One way to reduce costs--especially in an era of health care costs rising much faster than inflation--is to reduce the number of workers with benefits. Provided the technology is cheaper in the long run than labor, technology will win--provided consumers accept it. But we're totally fine with self checkout lanes at supermarkets, self-serve gas stations, and ATMs. While an increased minimum wage would, theoretically, increase this incentive for businesses, I don't know how large the practical effect would be.