While debates in the hard sciences can be conclusively settled with controlled experiments, things aren’t so easy to measure in the social sciences, such as economics.
Suppose we were to measure the effect of a minimum wage hike in the State of New Jersey, for example. In our hypothetical, suppose New Jersey raised its minimum wage from $7.25 an hour to $9.25 an hour, and surprisingly, the unemployment rate among low skilled workers didn’t budge, staying at 7%. What could be concluded from this?
An advocate for a higher minimum wage would cite this as proof that a higher minimum wage doesn’t cost jobs. But couldn’t it also be the case that in absence of the minimum wage hike, the unemployment rate among low skilled workers would’ve actually fallen instead of staying the same? It’s a strong possibility – but unlike in the hard sciences – it’s close to impossible to know.
So when it comes to Minnesota’s series of minimum wage hikes that began in 2014, neighboring Wisconsin (that didn’t raise their minimum wage) acts as a perfect control group. Minnesota’s minimum wage rose to $8 an hour in 2014, $9 in 2015, and $9.50 in 2016. Since it’s inflation adjusted, it’s $9.65 in 2018. Smaller employers (less than $500,000 in annual revenue) get a slight exception and only have to pay $7.87, but an extremely small percentage of workers are employed by firms of that size. Even the typical fast-food chain (which are the most likely to pay minimum wage) tend to gross over $500,000 per location.
And what’s happened since then? From 2010-2014 fast food employment grew at the same rate in Minnesota and Wisconsin. Since 2014 it’s grown 4.1 percentage points more in WI.
When it comes to the rest of the economy, (outside the small percentage affected by the minimum wage) Minnesota’s economy has been absolutely dominating Wisconsin’s in terms of economic performance – which makes this an even more damning case against minimum wage hikes. Despite Minnesota’s economy being stronger overall, it still couldn’t absorb the shock of a higher minimum wage, and thus lagged Wisconsin when it came to the economic performance of low skilled workers.
It goes without saying that this is hardly the first piece of evidence suggesting that the minimum wage increases unemployment. And it’s not just in the restaurant industry that the minimum wage increases unemployment – I was just using that as a proxy for low-skilled unemployment. Nearly all studies on the matter find the minimum wage increases unemployment among the young and low skilled.
A survey of American Economics Association members found that over 73 percent of AEA labor economists believe that a significant increase will lead to employment losses and 68 percent think these employment losses fall disproportionately on the least-skilled. Only 6 percent feel that minimum wage hikes are an efficient way to alleviate poverty.
As Al Gore would say; on this issue, the science is settled. (RELATED: $15 Minimum Wage to Cost California 400,000 Jobs).
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