President Obama has called for increasing the minimum wage, saying it will help some of the poorest Americans. Opponents argue that a higher minimum wage will lead employers to cut jobs.
Figuring out the effect of raising the minimum wage is tough. Ideally you’d like to compare one universe where the minimum was raised against an alternate universe where it remained fixed.
Economist David Card found the next best thing. In 1992, New Jersey was about to raise its minimum wage. And right next door, there was a parallel universe: Pennsylvania, which was not raising its minimum wage.
Card and a colleague decided to study what had happened to jobs at fast-food restaurants in both states. They the surveyed restaurants, and found that the number of jobs actually went up in New Jersey, which increased its minimum wage, compared to the number of jobs in Pennsylvania, which didn’t.
Card theorized that employers were making less money. The prices of hamburgers had gone up. But as far as he could tell, raising the minimum wage did not end up costing jobs.
The study and subsequent book, Myth and Measurement: The New Economics Of The Minimum Wage, bugged economist David Neumark. He explains:
“It was presented as, ‘Economics has it all wrong.’ And I think that coupled with the evidence that the data looked kind of strange, just really prompted us to say, ‘Lets go back and get what we think will be better data, and do the whole thing over again.’ ”
Neumark and a colleague got actual payroll data from fast-food restaurants in New Jersey and Pennsylvania. And they came to the opposite conclusion: Raising the minimum wage slightly reduced the number of jobs.
But this was not the end of things. The authors of the original paper then went back and redid the experiment using government data. And they came to the same conclusion as from the first study: Raising the minimum wage did not cost jobs.
Findings like these are the reason the debate over the minimum wage goes on and on — not just among politicians, but also among economists.
The newest study, which the Congressional Budget Office published in February, says raising the minimum wage could cost 500,000 jobs. But it would also increase hourly wages for more than 16 million people.