Robert Murphy on the Minimum Wage
In this article, I explain why, even if the revisionist empirical studies are accurate, it still does not follow that the proposed hike in the minimum wage will be a boon for low-skilled workers. I also argue that, because critics have raised many troubling concerns about these studies, we should not accept them at face value. I conclude that economists should maintain the standard view that employers have a downward-sloping demand for low-skilled labor and that raising the minimum wage will tend to destroy job opportunities for many of those whom advocates of the higher minimum wage wish to help.
This is the third paragraph from February’s Econlib article, “Economists Debate the Minimum Wage,” by Robert P. Murphy. If you have been following the debate, you know that there’s some pretty heavy econometrics involved. Bob works his way through it and tells you what the controversies are. Here are two paragraphs on some of the key econometric issues:
Now that I’ve reviewed some of the terminology and methodological issues, I can summarize some of the key arguments. Dube et al. (2010) concede that if we rely merely on general time trends and regional fixed effects, we will, indeed, see the old consensus: the minimum wage destroys low-skilled jobs. Yet if we include regional-specific trends indexed by time period, the influence of the minimum wage begins to disappear and, in particular, using their preferred control group method (of contiguous county pairs) completely obliterates the textbook finding. The minimum wage may even have a positive impact on employment.
On the other hand, Neumark and Salas (2013) provide a summary and critique of the revisionist studies. For example, they show that the results of Allegretto et al. (2011) depend on a very particular choice of time period and on a particular “functional form” of the state-specific time trend. If Allegretto et al.’s same regression were run on a different portion of the time period they chose (which had recessions at the start and end), then the minimum wage would appear to hurt teen employment after all. Moreover, even using Allegretto et al.’s original time period, Neumark and Salas merely allowed the state trend variable to be a higher order (not just linear), and, once again, the result was that the minimum wage hurt employment. As Neumark and Salas put it, “Thus, [Allegretto et al.’s] claim that underlying trends that vary by state generate spurious evidence of negative minimum wage effects on teen employment is clearly not true. Rather, only with a very specific form of controlling for this spatial heterogeneity” do the revisionist results hold up.
There’s a nice Reference section at the end that gives titles, authors, and coordinates of the various articles on the issue.