Robert Murphy on Minimum Wage Studies
Many economists who currently support large minimum wage hikes claim that the best research now shows that such an increase would not cause significant drops in employment. However, their conclusion relies on a dubious reading of the literature. Dozens of recent empirical studies show significant employment reductions from minimum wage hikes, with some of these analyses using the newer “case study” approach, as opposed to the traditional regression analysis. Furthermore, serious methodological criticisms have been leveled against even the best of the studies used to justify increases in the minimum wage. Finally, even on their own terms, the studies purporting to show that the minimum wage is benign can justify only modest hikes: these studies’ own results are consistent with the claim that aggressive minimum wage hikes will cause many unskilled workers to lose jobs.
This is the second paragraph in this month’s Econlib Feature Article “Large Increases in the Minimum Wage Are Likely to Destroy Jobs,” by Robert P. Murphy.
However, in the present article, I focus on the narrow issue of the empirical estimates of the employment effect of a minimum wage hike. I cite the recent literature showing that this is still an open question even if we consider only modest hikes. Furthermore, even if we stipulate the results in the 2010 Dube et al. paper, we still should be wary of the popular minimum proposals, because the proposed increases are so large. Ironically, it would be more accurate to say that there is no evidence to justify large increases in the minimum wage.
One of the best paragraphs:
Now the interesting thing is that when we perform this exercise, it turns out that the lower bound falls smack dab within the traditional consensus. In terms of coefficients, the orthodox regressions found that the minimum wage variable fell in the range of negative 0.100 through negative 0.300, whereas (in the quotation above) Dube et al., in their preferred model, report that it’s probably not worse than negative 0.147. This is neither the intellectual revolution nor the green light for policymakers that Krugman and others would have us believe.
The whole piece is excellent.