Truth has become so tribal today, facts so factional, that it may be naive to hope for open-minded consideration of the riddles researchers keep wrestling with in the complex minimum-wage debate.
But the big minimum-wage hikes being pushed all across America are muscular political interventions in labor markets. Minnesota has raised its statewide minimum by roughly one-fourth since 2014 (to $9.50 for large employers), and advocates are pressing in Minneapolis and St. Paul to boost local minimums higher still, maybe to the $15 level being phased in for workers in Seattle, New York and elsewhere.
This session in the Minnesota Legislature, Republicans are trying to pre-empt such local labor market regulations, over the objections of DFLers, including Gov. Mark Dayton.
These bold economic therapies will have their most important effects, for good or ill, on people with small incomes and limited skills. And it’s safe to say experts are uncertain and not agreed on what those effects may be.
So it’s worth watching as researchers take advantage of the living laboratory created by the varied minimum-wage increases taking effect in localities and states these days, enabling many comparisons. The challenge is to isolate the effects of minimum-wage changes amid all the other forces — economic, social, demographic — that constantly alter incomes and employment levels between different times and different places.
Several new studies, meanwhile, point to indirect effects, apart from employment levels, through which minimum hikes might harm low-skill and low-income people.
The employment effects themselves continue to appear rather small. In a paper published in January by the National Bureau of Economic Research, Jeffrey Clemens of the University of California and Michael Strain of the American Enterprise Institute looked at the results so far of 18 state-level minimum wage increases in 2013 and 2014. They found, overall, that the hikes had “modestly held back employment among young adults and young high school dropouts.”
Emphasis on “modestly.” Clemens and Strain estimate that these low-skill groups saw employment rise by 1 percentage point less in states that boosted their minimums compared with states that didn’t. In many cases, they write, the differences they found “are statistically indistinguishable from zero.”
Still, it’s early, the researchers say. They are “reluctant to draw strong … conclusions” without seeing “longer-run effects.”
This basic finding — that moderate increases in minimum wages produce modest early “disemployment,” making study of longer-run results and the impact of bigger hikes essential — is comparable, Clemens and Strain note, to the initial report last year from the Seattle Minimum Wage Study.
Locally, a somewhat bolder conclusion came from a study commissioned by the Minneapolis City Council. The Roy Wilkins Center at the University of Minnesota’s Humphrey School “did not find significant projected job growth losses due to the proposed minimum wage increases” to either the $12 or $15 an hour level, the city website says. (The study does offer a wide range of possible effects.)
Overall, Clemens and Strain acknowledge a “lack of consensus regarding the minimum wage’s employment effects” after surveying a wide range of studies.
They point, however, to what they call “more generalizable ... insights.”
First, they say, many studies find that employers faced with minimum-wage hikes, especially in the restaurant business, raise prices. (The Minneapolis study anticipates slightly higher prices, too.) Clemens and Strain suggest that the likelihood of price pass through “blunts” the benefit of higher wages, and means “minimum wage increases are less redistributive than one might expect.”
One reason, they say, is that lower-income families tend to spend a lot of their money on goods produced by minimum-wage workers (and thus likely to rise in price after a minimum hike) — while many minimum-wage workers are children or spouses in more prosperous households.
If so, a slight reverse Robin Hood effect is possible from higher minimums.
On the other hand, Clemens and Strain also point to studies documenting “bargaining spillovers.” Workers who earn somewhat more than the minimum wage often win raises as their competitive position improves after a boost in the minimum. Through this mechanism, “a minimum wage change’s effect may generate more redistribution towards low-skilled workers … .”
But it’s worth remembering that these spillover benefits aren’t flowing to the lowest-skill workers or the lowest-income families. Instead, the poorest might bear the brunt of price rises and any disemployment effects.
Two other recent studies fuel similar concerns.
John Horton of New York University designed an ingenious experiment on a digital employment marketplace, where online employers and workers find each other. He contrived to set a minimum wage temporarily for selected jobs.
Horton found that employment levels changed little, but that employers faced with the minimums replaced less-productive workers with more-productive workers, suggesting to him that minimum wages can crowd out the least-skilled.
In a New York Times report on Horton’s work, other economists questioned whether this experimental result accurately mirrors a minimum wage hike’s effect when imposed city- or statewide. Horton argues that his experiment shows at least that employers have a strong incentive to replace low-skilled workers one way or another when forced to pay higher wages.
The Times also described a study from Michael Luca of Harvard and Dara Lee Luca of Mathematica Policy Research. They found that while a minimum-wage hike did not increase the overall rate of restaurant closings in an area, it did appear to drive out of business restaurants that were poorly rated on online review sites. These, the Times says, may be establishments that employ less-skilled and less-experienced workers.
In the classic free-market manifesto “Economics in One Lesson,” Henry Hazlitt urged would-be improvers of the free-market economy always to consider not just who benefits from an intervention but also who pays the cost. It may be a lesson especially worth recalling on the minimum wage.
D.J. Tice is at Doug.Tice@startribune.com.