Will a Minimum Wage Hike Cause Job Loss? A Leading Economist Speaks

Reacting to Governor Jay Inslee’s call this week to increase the state minimum wage, Republicans had a predictable response.

“More people will lose jobs,” Sen. Linda Evans Parlette of Wenatchee told The Seattle Times.

It’s the same response conservatives and other skeptics of raising the minimum wage had when faced with SeaTac’s Proposition 1, which passed in November and set the wage floor at $15-an-hour for certain workers serving the airport. “Approximately 5 percent of low-wage jobs will be lost,” declared a “special report” by the right-leaning Washington Research Council. Likewise, when asked in an interview last week about the $15 movement in Seattle, state Washington Republican Party chair Susan Hutchison said that her main concern was unemployment.

If this were 20 or 25 years ago, most economists would have agreed with that concern, asserts Arindrajit Dube, a University of Massachusetts at Amherst economist and a leading researcher on the minimum wage. But their convictions were based on what Dube calls “shallow data.”

In the ‘90s, however, came an opportunity for empirical evidence. With the federal minimum wage stagnant, states and local jurisdictions began to take matters into their own hands. In 1992, New Jersey set a new minimum wage that was nearly 20 percent higher than the federal level. Pioneering economists David Card and Alan Kreuger set out to study the effect by examining employment levels in New Jersey and bordering Pennsylvania. “We found it didn’t cause loss of jobs in New Jersey,” relates Card, who is now at the University of California at Berkeley. Since then, he says, “many, many people followed that up” with their own studies.

One of the them is Dube, who with fellow economists T. William Lester and Michael Reich, looked at minimum wage differentials in bordering jurisdictions over a period of two decades. Their conclusion, Dube says: “There is very little evidence of job loss.”

“The minimum wage workforce is mostly employed by retail, accommodation and food service businesses,” Dube says when asked to explain why. “Those are fairly location-specific.” Even if prices go up because of increased labor costs, customers don’t want to drive far out of their way just to save a little money on, say, burger. For one thing, they’d have to factor in the cost of transportation, which might mean they wouldn’t save any money at all.

Dube allows that some economists have come up with contradictory findings, although he argues that their methodology is flawed because they compared states with very different economies-- “like Washington and Texas.”

Still, he says, the consensus in his profession has shifted. He points to a survey of economists published last year by the University of Chicago Booth School of Business. Asked whether raising the minimum wage “would make it noticeably harder for low-skilled workers to find employment,” just 34 percent agreed.

Yet Dube also cautions that the data gathered so far relates to wage increases that tend to run about 25 percent. Inslee’s proposal of a hike between $1.50 and $2.50 falls in that range. A $15 minimum wage, on the other hand, would amount to a dramatic 60 percent increase.

The effect, Dube affirms, “would be beyond what the data really speaks to. It’s something we don’t know.”

With the $15 movement stronger than ever in Seattle, we seem to be on the verge of a great experiment. Whatever happens, economists will have a field day studying the results. Asked if he’s excited about doing so, Dube enthuses, “Absolutely!”

 
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