Blog Post

AEIdeas

Democrats and much of the media continue to spread the myth that the beneficial effects of raising the minimum wage are “settled science.” But apparently no one told economists Jeffrey Clemens and Michael Wither of the University of California at San Diego. Or if someone did, the researchers didn’t listen. Over at VoxEU, they offer a summary of their latest minimum wage research — conducted by analyzing groups of workers in states that raised the wage floor and those that didn’t — that should make proponents think twice:

Over the late 2000s the average effective minimum wage rate rose by nearly 30% across the United States. Our best estimate is that these minimum wage increases reduced the employment of working-age adults by 0.7 percentage points. This accounts for 14% of the employment rate’s total decline over this time period and amounts to 1.4 million workers. A disproportionate 45% of the affected workers were young adults (aged 15 to 24). We next estimate the minimum wage increases’ effects on low-skilled workers’ incomes and income trajectories. We find that binding minimum wage increases reduced low-skilled individuals’ average monthly incomes. Targeted workers’ average incomes fell by an average of $100 over the first year and by an additional $50 over the following two years. While surprising at first glance, we show that the short-run estimate follows directly from our estimated effects on employment and the likelihood of working without pay. The medium-run estimate reflects additional contributions from lost wage growth associated with lost experience and training. Because most minimum wage workers are at early stages of their careers, lost opportunities for accumulating experience can be quite costly. We provide direct evidence that such losses translate into meaningful reductions in upward economic mobility. Two years following the minimum wage increases we study, low-skilled workers had become significantly less likely to transition into higher-wage employment in bound states than in unbound states. Over this recent historical episode, the minimum wage’s effects on career paths thus appear to be quite important.

As my AEI colleague Stan Veuger notes, “the 14% employment decline identified by Clemens and Wither works out to some 1.4 million people, ” a staggering figure during a once-in-a-lifetime economic crisis, and hopefully a sufficiently strong warning for those considering more of the same poisonous medicine.” Is there a better way. Again, Clemens and Wither: