As you can see from this chart below, several states are slated to increase their minimum wages (and other states are contemplating increases):
Isn’t this a recipe for continued unemployment of many relatively unskilled workers and even job loss among those currently at the bottom end of the wage scale? The economic literature has generally linked minimum wage hikes with greater unemployment but there have been challenges to the orthodox view about the specific link between wage hikes and job loss rates for current workers. Nonetheless, the orthodox view has been upheld by a number of studies. As economist Linda Gorman notes: “Several decades of studies using aggregate time-series data from a variety of countries have found that minimum wage laws reduce employment.” Better yet, here is one recent National Bureau of Economic Research (NBER) summary of what economists have found out about the broader impact of the minimum wage:
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. Two other important conclusions emerge from our review. First, we see very few – if any – studies that provide convincing evidence of positive employment effects of minimum wages, especially from those studies that focus on the broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.
Well, here is what some “experts” told CNN: “Some experts say that an important first step to getting the economy out of its slump is to boost the federal minimum wage to the $10 range.” I’m curious to know which experts they asked given what the NBER study above notes.
Bruce Bartlett nicely captured the problem in reference to the last federal minimum wage increase:
“It’s too bad that Congress didn’t decide to postpone today’s minimum wage increase until after the end of the recession. Although it seems obvious that it will discourage hiring and encourage layoffs, some liberals are saying that it will stimulate the economy by increasing spending by those getting a wage boost. What they neglect to calculate is the lower spending by those who are laid off or can’t get jobs because of the higher minimum wage, and the lower spending on things other than wages by businesses affected by it. It’s a classic example of Frédéric Bastiat’s broken window fallacy.”