This is an introduction to selected scholarly work on minimum wage regulation for students. This is intended as an introduction to the scholarly literature on the minimum wage, not as a complete review of the literature, which is extensive.
When a minimum wage law is effective, i.e., where it imposes a wage above the market value of a grade of labor… the supply of labor services exceeds the demand, and the “unsold surplus” of labor services means involuntary mass unemployment.
— Murray Rothbard
An introduction to minimum wages, from Gwartney et al.
The basic postulate of economics indicates that a higher minimum wage will reduce the employment of low-skill workers. There is some controversy about the size of the employment reduction, but the weight of the empirical evidence indicates that each 10 percent increase in the minimum wage will reduce employment by between 1 and 2 percent. Because the wage increases are substantially larger than the reductions in employment, a higher minimum wage will nearly always increase the total earnings of low-skill workers. The proponents of higher minimum wages believe that the higher total earnings are well worth the cost of the relatively small reductions in employment.
Many supporters of a higher minimum wage also believe that it will reduce the poverty rate. At first glance, this appears to be true, but examination of the data indicates it is highly questionable. There are three major reasons why this is the case. First, the bulk of minimum wage employees–about 80 percent–are members of households with incomes above the poverty level; one-third live in households with above-average incomes. Half of the minimum wage workers are between the ages of 16 and 24 years and most of these work part-time. Only one out of every seven minimum wage workers (about 15 percent) is the primary earner for a family with one or more children. Thus, the typical minimum wage worker is a single, youthful, part-time secondary worker in a household with an income above the poverty level. Second, there will be unintended effects of the higher minimum. Employers will take steps to control (or compensate for) their higher wage costs. These will include a reduction in hours worked, fewer training opportunities, a less convenient [p. 68] work schedule, and fewer fringe benefits. Further, many of the minimum wage workers are also consumers of products impacted by the higher minimum wage. These workers will have to pay higher prices for goods such as fast food. Thus, the actual compensation of the minimum wage workers will increase by less than the expansion in the minimum. Finally, more than half of the poor families in the United States do not have anyone in the labor force, and therefore a higher minimum wage will not help them. The date presented here are from government sources and widely accepted by professional economists.
When thinking about the effects of the minimum wage on youthful low-skill workers, it is important to consider the impact in both the short and long run. Work experience provides youthful workers with an opportunity to develop self-confidence, good work habits, and skills and attitudes that will make them more valuable to future employers. This opportunity is particularly important for high school dropouts and others with weak educational backgrounds. Unless these young people are able to prove their value to employers and develop on-the-job skills, it is unlikely that they will be able to move up the job ladder and realize higher earnings in the future.
The value of work experience and skill development is widely recognized in the case of those with higher levels of education. For example, college students often take unpaid internships–that is, they work for a zero wage–with government agencies and nonprofit organizations in order to gain experience that will enhance their future earning opportunities. Indeed, members of Congress advertise unpaid internships to college students by pointing out the benefits of work experience in beginning-level jobs. Yet many of these same politicians support minimum wage levels that reduce the opportunity of disadvantaged youth to [p. 69] acquire the work experience and on-the-job training that will enhance their future employment prospects. This adverse impact on low-skill youth is almost always ignored, except by economists. Nonetheless, it is an important unintended secondary effect of minimum wages that adversely impacts the long-term employment of young people, particularly those with the least amount of education.
From Gwartney, Stroup, Lee, Ferrarini, and Calhoun, 2016. Common Sense Economics, pp. 67–69.
Readings
Beauchamp, Andrew, and Stacey Chan. 2013. “The Minimum Wage and Crime,” B.E. Journal of Economic Analysis and Policy 14, no. 3.
https://www2.bc.edu/andrew-beauchamp/crimemw_5_4_12.pdf
“A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. …[W]orkers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Further, there is an increase of property theft among both unemployed and employed individuals, suggesting that reduced employment effects dominate any wage effects.”
Bossler, Mario, and Hans-Dieter Gerner. 2020. “Employment Effects of the New German Minimum Wage: Evidence from Establishment-Level Microdata,” ILR Review 73, no. 5: 1070–94. Also available at https://journals.sagepub.com/doi/pdf/10.1177/0019793919889635
“The authors present the first evidence on the consequences of the new statutory minimum wage in Germany, which was implemented on January 1, 2015. …A difference-in-differences estimation reveals an increase in average wages between 3.8% and 6.3% and an employment loss by approximately 1.7% in establishments affected by the minimum wage. These estimates imply a labor demand elasticity with respect to wages ranging between –0.2 and –0.4.”
Burke, Debra, Joseph Long, and Stephen Miller. 2011. “Minimum Wage and Unemployment Rates: A Study of Contiguous Counties,” Gonzaga Law Review. Also available at:
https://asp.mercatus.org/publications/minimum-wage-and-unemployment-rates-study-contiguous-counties
“[T]here is a strong correlation between a higher legislated minimum wage rate and a higher unemployment rate.”
Clemens, Jeffrey. 2021. “How Do Firms Respond to Minimum Wage Increases? Understanding the Relevance of Non-employment Margins,” Journal of Economic Perspectives 35, no. 1: 51–72. https://www.aeaweb.org/articles?id=10.1257/jep.35.1.51
“This paper discusses non-employment margins through which firms may respond to minimum wage increases. Margins of interest include evasion, output prices, noncash compensation, job attributes including effort requirements, the firm’s mix of low- and high-skilled labor, and the firm’s mix of labor and capital.”
Clemens, J., & Strain, M. R. (2022). Understanding “Wage Theft”: Evasion and avoidance responses to minimum wage increases. Labour Economics, 79. https://doi.org/10.1016/j.labeco.2022.102285
Clemens, Jeffrey, and Michael Wither. 2019. “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers,” Journal of Public Economics 170: 53–67.
https://www.sciencedirect.com/science/article/pii/S0047272719300052
“…we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. […] In aggregate, our estimates suggest that this period’s minimum wage increases reduced aggregate employment rates by at least half of a percentage point in states that were bound by the federal minimum wage increases.”
Fone, Zachary S., Joseph J. Sabia, and Resul Cesur. 2020. “Do Minimum Wage Increases Reduce Crime? NBER Working Paper 25647. https://doi.org/10.3386/w25647
“[O]ur results provide no evidence that minimum wage increases reduce arrests. Instead, we find that raising the minimum wage increases property crime arrests among 16-to-24-year-olds, with an estimated elasticity of approximately 0.2. …Our estimates suggest that a $15 Federal minimum wage could generate criminal externality costs of nearly $2.5 billion.”
Jardim, Ekaterina, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, and Hilary Wething. 2022. “Minimum-Wage Increases and Low-Wage Employment: Evidence from Seattle.” American Economic Journal: Economic Policy 14, no. 2: 263–314. https://doi.org/10.1257/pol.20180578
“Seattle raised its minimum wage to as much as $11 in 2015 and as much as $13 in 2016. …Relative to outlying regions of the state identified by the synthetic control method, aggregate employment at wages less than twice the original minimum—measured by total hours worked—declined….” […] “Analyses suggest aggregate employment elasticities in the range of –0.2 to –2.0, concentrated on the intensive margin in the short run and largest among inexperienced workers.”
Ku, H. (2022). Does Minimum Wage Increase Labor Productivity? Evidence from Piece Rate Workers. Journal of Labor Economics, 40(2), 325–359. https://doi.org/10.1086/716347
Monras, J. (2019). Minimum Wages and Spatial Equilibrium: Theory and Evidence. Journal of Labor Economics, 37(3), 853–904. https://doi.org/10.1086/702650
Neumark, David. 2015. “The Effects of Minimum Wages on Employment,” FRBSF Economic Letter 2015-37. https://www.frbsf.org/economic-research/publications/economic-letter/2015/december/effects-of-minimum-wage-on-employment/
“[A] reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession. This is a small drop in aggregate employment that should be weighed against increased earnings for still-employed workers because of higher minimum wages.”
Neumark, David, and Elena Nizalova. 2007, “Minimum Wage Effects in the Longer Run,” Journal of Human Resources 42, no. 2: 435–52. https://www.jstor.org/stable/40057312
“Exposure to minimum wages at young ages could lead to adverse longer-run effects via decreased labor market experience and tenure, and diminished education and training… Evidence suggest that as individuals reach their late 20s, they earn less the longer they were exposed to a higher minimum wage at younger ages, and the adverse longer-run effects are stronger for blacks…such longer-run effects of minimum wages…are likely more significant than the contemporaneous effects on youths that are the focus of research and policy debate.”
Neumark, David, J.M. Ian Salas, and William Wascher. 2013. “Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?” NBER Working Paper 18681.
https://www.nber.org/papers/w18681
“[N]ew evidence based on methods that let the data identify the appropriate control groups leads to stronger evidence of disemployment effects, with teen employment elasticities near -0.3, We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others….”
Neumark, David, and Peter Shirley. 2021. “Myth or Measurement: What does the New Minimum Wage Research Say about Minimum Wages and Job Loss in the United States?” National Bureau of Economic Research Working Paper 28388. https://www.nber.org/papers/w28388
“Our key conclusions are: (i) there is a clear preponderance of negative [employment] estimates in the literature; (ii) this evidence is stronger for teens and young adults as well as the less-educated; (iii) the evidence from studies of directly-affected workers points even more strongly to negative employment effects; and (iv) the evidence from studies of low-wage industries is less one-sided.”
Neumark, David, and Cortnie Shupe. 2018. “Declining Teen Employment: Minimum Wages, Other Explanations, and Implications for Human Capital Investment,” Mercatus Working Paper
https://www.mercatus.org/system/files/neumark-teen-employment-mercatus-working-paper-v1.pdf
“We find that higher minimum wages are the predominant factor explaining changes in the schooling and workforce behavior of those age 16-17 since 2000. …Higher minimum wages have led both to fewer teens in school and employed at the same times, and to more teens in school but not employed…. [T]he evidence points to adverse effects on longer-run earnings for those exposed to these higher minimum wages as teenagers.”
Qiuping, Yu, Shawn Mankad, and Masha Shunko. 2021. “Evidence of the Unintended Labor Scheduling Implications of the Minimum Wage.” Forthcoming in Manufacturing and Service Operations Management http://dx.doi.org/10.2139/ssrn.3863757
“Our study empirically identifies and highlights a new operational mechanism through which increasing the minimum wage may negatively impact worker welfare. Our further analysis suggests that the combination of the reduced hours, lower eligibility for benefits, and less consistent schedules (that resulted from the minimum wage increase) may substantially hurt worker welfare, even when the overall employment at the stores stay unchanged.”
Renkin, T., Montialoux, C., & Siegenthaler, M. (2022). The Pass-Through of Minimum Wages into U.S. Retail Prices: Evidence from Supermarket Scanner Data. Review of Economics and Statistics, 104(5), 890–908. https://doi.org/10.1162/rest_a_0098
Sabia, Joseph J. 2006. “The Effect of Minimum Wage Increases on Retail and Small Business Employment.” Employment Policies Institute.
https://www.epionline.org/wp-content/studies/sabia_05-2006.pdf
“A 10 percent increase in the minimum wage is associated with a 4.6 to 9.0 percent decline in teenage employment in small businesses and a 4.8 to 8.8 percent reduction in hours worked by teens in the retail sector.”
Skarbek, David, Emily Skarbek, Brian Skarbek, and Erin Skarbek. 2012. “Sweatshops, Opportunity Costs, and Non-Monetary Compensation: Evidence from El Salvador,” American Journal of Economics and Sociology 71, no. 3: 539–561.
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1536-7150.2012.00827.x
“[R]equiring employers to meet certain wage levels, working conditions, or benefits programs can do substantial harm to poor workers by eliminating their most preferred employments. For example, Harrison and Scorse (2010) find large, negative effects on aggregate manufacturing employment from the imposition of a higher minimum wage motivated by the US government’s threat to withdraw special tariff privileges because of human rights issues.”