As more and more states and localities adopt a $15 an hour minimum wage, it might be useful to ponder the following question: What happens when new findings deeply rooted in social science methodology challenge the reigning orthodoxy just as deeply rooted in social science theory? The orthodoxy that increases in the minimum wage will lead to lower employment has become an article of faith, and those who challenge it are considered to be heretics. Still, over the years this orthodoxy has been challenged by studies showing that increases in the minimum wage don’t have the effects typically predicted by the model of competitive markets. Why, then, do so many cling to this almost religious belief that the minimum wage will be harmful to the economy? It could be that a model is nothing more than a fountain of information that can be used by different interests in support of their respective agendas. Initial data focused on the teen labor market. Buttressed by a report by the Federal Commission on the Minimum Wage in 1981, it had long been the consensus that a 10 percent increase in the federal minimum wage would result in a 1-3 percent decrease in employment among teenagers. Among adults, however, the same commission found the disemployment effects to be negligible. If one wanted to demonstrate that the minimum wage would result in lower employment, here was data to prove it. Moreover, in the early 1980s, a majority of minimum wage earners were teenagers. But that is no longer the case. Since then many studies have demonstrated that the minimum wage will not have adverse employment consequences. The most famous studies from the 1990s were conducted by David Card and Alan Krueger on the fast food industry. Looking at fast-food establishments in New Jersey where there was an increase in the state’s minimum wage and Pennsylvania where there was no increase in the state’s minimum wage, they found there to be no disemployment effects. On the contrary, they actually found that employment in fast food restaurants in New Jersey actually increased. Of course, they were roundly criticized by deeply religious neoclassical economists. The problem was that their methodology — yes that social science methodology — was unassailable. Hence the profession began to trip over itself with claims that of course the minimum wage could not cause a disemployment effect because it was still so far below a market clearing wage. It was also argued that employment rose because the fast food industry is a labor monopsony, meaning that it is the principal, if not the sole, employer of minimum wage earners. I also conducted surveys of small businesses during the late 1990s and found that most small businesses had not laid off workers. Moreover, at a time when the minimum wage had just increased to $5.15 an hour, most small businesses indicated that were the minimum increased to $6.00 an hour, they still would not lay off current workers. If there were employment consequences, it was that many would not have hired as many workers in the future. The main problem with most studies on the minimum wage is that we really do not have good data. My studies were criticized on the grounds that asking an employer how s/he would respond before actually be faced with an increase is unreliable. An employer in good times may respond one way and behave differently when circumstances change. And yet, unless we actually ask employers how they behave, or how they expect they might behave, we really have no way of knowing. The neoclassical model is merely assuming their behavior without concrete data to back it up. Many of the studies on the minimum wage are based on data from the March Supplement of Current Population Survey (CPS), which is census data looking at around 140,000 households nationwide. But this survey merely looks at individuals in households; it does not survey business establishments. At best, then, all it can tell us is how many are employed prior to an increase — a survey at time 1 — and how many are employed following an increase — a survey at time 2. All we can establish is a statistical correlation between changes in employment and minimum wage increases; we cannot establish a causal relationship. Still, this hasn’t stopped various social scientists from trotting out these correlations, and sometimes even strong ones, as scientific proof that the minimum wage results in lower employment. And yet, more and more studies demonstrate that at best there is ambiguity surrounding the minimum wage. The most recent findings are found in a book titled What Does the Minimum Wage Do? by Dale Belman and Paul Wolfson, which is a meta-analysis of all the studies out there. Just looking at the employment effects alone, they find little evidence to support the predictions of the competitive market model. Nevertheless, this isn’t to say that there could not be were the minimum wage raised to $15.00 an hour. Mostly everybody agrees that there is a tipping point — a point at which we will see employment effects. And yet, these effects may be mitigated because many that are adopting them are phasing them in gradually. This accomplishes two things: First, there won’t be the shock of an immediate increase, and many of those that have adopted the new $15 an hour minimum already have minimum wages substantially higher than the current $7.25 federal minimum wage. And second, by the time the minimum wage becomes $15.00 by 2020, it will still be below a market clearing wage. The question, however, remains: what should the policymaker’s response be to ambiguous data? Ideally it should be an opportunity for policy experimentation. If we can’t be certain that there will be negative consequences, and there is potential to benefit others, that should be what guides policy. Alas, policy is not made in the ideal world; it is made in a politically contentious environment full of different interest groups. Harold Lasswell famously defined politics as who gets what when and how? We could modify this to read that the interest group that gets what it wants and how it wants it is the group that was able to successfully manipulate data to suits its agenda. It does not follow, however, that this would be any less true were the data any less ambiguous. But the plethora of new findings should be used by those who want to make a cogent argument for the minimum wage.
Author : Oren Levin-Waldman (Professor of Public Policy and Public Administration, Metropolitan College of New York) Find him on Linkedin here: