January 15, 2016

Left-wing minimum wage claims contradicted by evidence, common sense

“Yet another study confirms raising the minimum wage doesn’t hurt the restaurant industry,” reads a triumphant headline on the website PressProgress, which is run by socialist think tank Broadbent Institute.

PressProgress and the Broadbent Institute have repeatedly championed a $15 minimum wage.

But as the Broadbent Institute admits in the body of the post, the study they cite finds only that small minimum wage increases would not produce “catastrophic outcomes” in the restaurant industry.

What about a $15 minimum wage? According to the study:
Much larger increases, like the $15 minimum wage recently enacted in Los Angeles, San Francisco, and Seattle and contemplated elsewhere (including New York), may have more substantial negative effects on the industry. Thus, the industry may be justified in opposing immediate, large hikes in the minimum wages.
More bad news for the Broadbent Institute: the literature review contained in the study points to a 2006 National Bureau of Economic Research paper by David Neumark and William Wascher showing that minimum wages decrease employment. The paper looked at close to 100 studies examining the impact of minimum wages on employment. Here’s what Neumark and Wascher found:
Our review indicates that there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries.
The results of Neumark and Wascher’s paper are unsurprising. Anybody with even the most rudimentary understanding of economics or how the world works should understand that minimum wages – which are a ban on low-wage employment contracts – can only negatively impact employment.

Another way of looking at it: by increasing the price of employment, the quantity demanded of it will decrease.

Although a few studies may support left-wing claims that minimum wages don't reduce employment, these claims are contradicted by both the economic evidence and by common sense.

(Click here for a follow-up post on why some studies may not find that minimum wages reduce employment.)

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