Last November,
I pointed out that President Obama had campaigned inward 2008 on a pledge to heighten the minimum wage, but that this proposal had vanished during the residuum of his showtime term. Now, subsequently the election, Obama somewhat unexpectedly resurrected the proposal inward his State of the Union address. For a review of the disputation over the economic science of the minimum wage, a useful starting indicate is
"
Why Does the Minimum Wage Have No Discernible Effect on Employment?" written yesteryear John Schmitt for the Center for Economic together with Policy Research.
While Schmitt's championship suggests, albeit inward the flat of a question, that it is an agreed-upon truth that the minimum wage has "no discernible outcome on employment," I would say that his ain review of the evidence suggests that at that spot is all the same a genuine disputation betwixt those who come across the work effects of the minimum wage every bit cipher together with those who come across it every bit small. As Schmitt writes inward the conclusion: "[W]hat is hitting nigh the preceding review of possible channels of adjustment – including work – is how oftentimes the weight of the empirical evidence is either inconclusive (statistically insignificant or positive inward roughly cases together with negative inward others) or suggestive of solely little economical effects."
There is a hard job of inferring causality here. Compared to the overall costs of firms, or fifty-fifty compared to the costs of low-wage labor, the effects of a slightly higher minimum wage are going to travel hard to distinguish from everything else that's happening inward the economy. The work prospects for low-skilled workers convey been falling for decades, together with it would clearly travel wrong to blame that on the minimum wage. Rises inward the minimum wage are to a greater extent than probable to occur when the economic scheme is doing good together with adding jobs, but it would clearly travel wrong to infer from this correlation that a higher minimum wage causes an increment inward jobs. In addition, at that spot are hard questions of what is sometimes called "publication bias" inward the minimum wage literature, inward which researchers of dissimilar political bents may--surprise, surprise--tend to issue the results that confirm their pre-existing beliefs.
Rather than travail to unpick this empirical puzzle here--for those who are interested, Schmitt provides a overnice overview of the fundamental newspaper together with their methods--I'd similar to focus on a assort issue, which I telephone telephone the Law of Many Margins. The "law" exactly points out that when a dominion is imposed, similar a minimum wage, at that spot are almost ever a broad diverseness of possible reactions to that law. Schmitt provides a listing of xi possible reactions (!) to a higher minimum wage. They are:
- Reduction inward hours worked (because firms faced amongst a higher minimum wage trim dorsum on the hours they want)
- Reduction inward non-wage benefits (to offset the higher costs of the minimum wage)
- Reduction inward coin spent on preparation (again, to offset the higher costs of the minimum wage)
- Change inward composition of the workforce (that is, hiring additional workers amongst midpoint or higher science levels, together with fewer of those minimum wage workers amongst lower science levels)
- Higher prices (passing the cost of the higher minimum wage on to consumers)
- Improvements inward efficient purpose of undertaking (in a model where employers are non ever at the elevation flat of efficiency, a higher cost of undertaking mightiness give them a force to travel to a greater extent than efficient)
- "Efficiency wage" responses from workers (when workers are paid more, they convey a greater incentive to drib dead along their jobs, together with thence may function harder together with shirk less)
- Wage compression (minimum wage workers instruct more, but those higher upwards them on the wage scale may non instruct every bit much every bit they otherwise would)
- Reduction inward profits (higher costs of minimum wage workers reduces profits)
- Increase inward involve (a higher minimum wage boosts buying ability inward overall economy)
- Reduced turnover (a higher minimum wage makes a stronger bond betwixt employer together with workers, together with gives employers to a greater extent than argue to educate together with care on to workers)
The evidence on many of these points is ambiguous at best, together with indeed may vary across industries or geographic areas or employers. But it's worth noting that which of these effects arise, together with amongst what magnitude, tin solely travel settled yesteryear empirical evidence, non theoretical assertions.
I confess that I uncovering it hard to instruct besides excited nigh pocket-sized increases inward the federal minimum wage every few years, which has been happening for decades. As Schmitt points out, the evidence is that this blueprint of minimum wage increases has had at most a little outcome on work together with other outcomes. But the minimum wage was $5.15/hour inward 2007, when President Bush signed legislation to heighten it to $7.25/hour yesteryear 2009. Given an unemployment charge per unit of measurement that has been stuck nigh or higher upwards 8% for iv solid years now, my preference would travel to de-emphasize rises inward the minimum wage for awhile longer--and instead focus on other methods to assist the working poor.