Saturday, December 20, 2014

MINIMUM WAGE, MAXIMUM IGNORANCE

It was the University of Chicago’s John Cochrane, one of the celebrated members of the Power Line 100, who wrote that “Once upon a time, the minimum wage, like free trade, was a basic test of whether you were awake in the first week of econ 1. We put a horizontal line in a supply and demand graph. Minimum wages increase unemployment of poor people.” But a higher minimum wage is a leading cause of the populist Left, and several referenda calling for a higher minimum wage passed by large margins in some of the same states where voters were tossing out Democrats last month.
There’s a brand new paper just out from the National Bureau of Economic Research (NBER), one of the most prestigious economic organizations in the country, by two economists at the University of California at San Diego that finds significant adverse effects on the number of jobs and the earnings prospects for the very low income people the minimum wage is supposed to help. The entire paper is behind the NBER subscriber paywall (CORRECTION: A reader helpfully spotted an accessible PDF version here), but you can read the complete abstract here, but this is the key sentence:
Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers.
Like most academic papers it is dense and filled with advanced equations, etc. But the conclusion of the main paper could hardly be more clear or direct:
We also present evidence of the minimum wage’s effects on low-skilled workers’ economic mobility. We find that binding minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings. This curtailment of transitions into lower middle class earnings began to emerge roughly one year following initial declines in low wage employment. Reductions in upward mobility thus appear to follow reductions in access to opportunities for accumulating work experience.
I’m sure liberals will tell us to “follow the science” on this issue, as James Pethokoukis reminds us:
Of course it’s strangely settled science on the left that raising the minimum wage is an unquestioned win-win all around. As Hillary Clinton said at a rally back in October, “And don’t let anybody tell you that raising the minimum wage will kill jobs. They always say that. I’ve been through this. My husband gave working families a raise in the 1990s. I voted to raise the minimum wage and guess what? Millions of jobs were created or paid better and more families were more secure.”
 http://www.powerlineblog.com/archives/2014/12/minimum-wage-maximum-ignorance.php

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