June 14, 2023
Tyler Cowen thinks the empirical research on the minimum wage is “swinging back in the neoclassical direction.”
That hunch broadly aligns with recent meta-research by the excellent David Neumark.
Neumark and Shirley:
“Our key conclusions are:(i) there is a clear preponderance of negative estimates in the literature; (ii) this evidence is stronger for teens and young adults as well as the less-educated; (iii) the evidence from studies of directly-affected workers points even more strongly to negative
employment effects; and (iv) the evidence from studies of low-wage industries is less one-sided.”
Two recent and interesting papers make the case for a swing back in the direction of earlier thinking (i.e. back in the direction of economics). The excellent Jonathan Meer with coauthor Hedieh Tajali write in their abstract:
“The nonprofit sector’s ability to absorb increases in labor costs differs from the private sector in a number of ways. We analyze how nonprofits are affected by changes in the minimum wage utilizing data from the Bureau of Labor Statistics and the Internal Revenue Service, linked to state minimum wages. We examine changes in reported employment and volunteering, as well as other financial statements such as revenues and expenses. The results from both datasets show a negative impact on employment for states with large statutory minimum wage increases. We observe some evidence for a reduction in the number of nonprofit establishments, fundraising expenses, and revenues from contributions.”
Seth Hill examines the influence of the minimum wage on homelessness. From his abstract:
“I study minimum wage changes in American cities and states 2006 to 2019. Using difference-in-differences methods for staggered treatments I find that minimum wage increases lead to increased point-in-time homeless population counts. Further analysis suggests disemployment and rental housing prices, but not migration, as mechanisms.”
I must confess that I’ve often found the empirical question of price floors’ disemploying effects to be somewhat banal. The whole thing was a misguided quest by those who never really believed in the Law of Demand. There’s no national debate about what a binding price floor on strawberries would do (though Thomas Sowell raises some interesting points about the differences between price controls on perishable vs. non-perishable items, but I digress…)
And those finding no or little unemployment effect are prone to a victory dance, when the economic point of view suggests the next step is to examine alternative margins of adjustment.
The above papers are a refreshing change of pace because, while still studying the “disemployment question,” the authors do so creatively and in new contexts.