So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. - Paul Krugman

 

 

 

This is one reason why 72 percent of US-based economists oppose a federal minimum wage of $15.00 per hour. In 2015, the Employment Policies Institute surveyed 166 economists in the United States on the subject. They found:

A proposed Rhode Island law would bring Rhode Island's minimum wage to $15 within four years. 

In 2008, economists David Neumark and William L. Wascher surveyed two decades of research into the effects of minimum wage laws. They focused on five areas: the effects of minimum wages on employment, minimum wage effects on the distribution of wages and earnings, the effects of minimum wages on the distribution of incomes, the effects of minimum wages on skills, and the effects of minimum wages on prices and profits. Here is what they say about the policy’s impact on each:

 

1. Minimum wages reduce employment

In other work (Neumark and Wascher 2007a), we review the entire recent body of literature on the employment effects of minimum wages, encompassing more than one hundred papers written since the early 1990s…In our lengthier review of employment effects, we conclude that, overall, about two-thirds of the hundred or so studies that we discuss yield relatively consistent (although by no means statistically significant) evidence of negative employment effects of minimum wages – while only eight give a relatively consistent indication of positive employment effects. In contrast, of the thirty-three studies we identify as providing the most reliable evidence, more than 80 percent point to negative employment effects. (p.38-39)

 

2. Minimum wage hikes reduce the earnings of low-paid workers

…the evidence suggests that higher minimum wages tend, on average, to reduce the economic well-being of affected workers. Evidence regarding the effects on workers initially paid at or just above the minimum suggests that their labor income declines as a result of minimum wage increases, reflecting negative effects of minimum wages on employment and hours. (p.139)

 

3. Minimum wage hikes make some low paid workers better off at the expense of others

In our view, the combined evidence is best summarized as indicating that an increase in the minimum wage largely results in a redistribution of income among low-income families, with some gaining and others losing as a result of diminished employment opportunities or reduced hours, and some likelihood that, on net, poor or low-income families are made worse off. (p.189)

 

4. Minimum wage hikes make young workers less skilled, lowering their future earnings

With respect to schooling, the evidence is stronger, with most of the research for the United States pointing to negative effects…recent research that studies the question more indirectly finds that teens and youths exposed to higher minimum wages have lower wages and earnings when they are in their late twenties, consistent with reduced skill acquisition… (p. 223)

 

5. Minimum wage hikes make products and services more expensive

…the limited empirical evidence consistently indicates that increases in the minimum wage lead to increases in prices of goods and services produced with low-skilled labor…(p. 247-248)

 

In 2014, along with economist J.M. Ian Salas, they examined the subsequent literature. They concluded that “the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”

 

Neumark updated his review of the research again in December 2018, asking ”When minimum wages are introduced or raised, are there fewer jobs?” He writes:

 

The potential benefits of higher minimum wages come from the higher wages for affected workers, some of whom are in poor or low-income families. The potential downside is that a higher minimum wage may discourage firms from employing the low-wage, low-skill workers that minimum wages are intended to help.

 

If minimum wages reduce employment of low-skill workers, then minimum wages are not a “free lunch” with which to help poor and low-income families, but instead pose a trade-off of benefits for some versus costs for others. Research findings are not unanimous, but especially for the US, evidence suggests that minimum wages reduce the jobs available to low-skill workers.