Thursday, August 16, 2018

The Empirical Reality of the Minimum Wage

From AIER:
So what, really, is the state of modern empirical research into minimum wages? Let’s start with an unambiguous statement: Paul Krugman is factually mistaken. Plenty of recent evidence indicates that raising the minimum wage costs jobs. As long-time minimum-wage researcher David Neumark concluded in a December 2015 article for the Federal Reserve Bank of San Francisco:

Coupled with critiques of the [econometric] methods that generate little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers — with possibly larger adverse effects than earlier research suggested.

My own extensive reading of minimum-wage research confirms Neumark’s conclusion. That said, it is also the case that quite a few, although not a majority, of the empirical studies of minimum-wage hikes find no evidence that these hikes destroy jobs. What explains these conflicting research results?

One reason for these inconsistent conclusions is simply the differences in skill and meticulousness that separate some researchers from others. Economic studies vary greatly in quality and reliability. Not every piece of published work by Ph.D. economists is trustworthy. Far from it. But even after excluding all shoddily done studies of minimum wages, we’re still left with conflict in the conclusions. Fortunately, economic theory itself supplies clues as to why. (Read more.)

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