These and others in recent years have said min wages increases will just hurt poor people since it will reduce employment opportunity as their price increases.
Truth is most studies show little effect of min wage laws on employment rates of low wage earners. In fact, the most comprehensive study by the Center for Economic and Policy Research (CEPR) shows a small increase in employment opportunities of low wage earners with each of seven min wage increases since 1990. Look at Table I on page 16 of their report:
Why Does the Minimum Wage Have No Discernible Effect on Employment?.
Executive Summary of the CEPR study:
The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.
The report reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. The strongest evidence suggests that the most important channels of adjustment are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ("wage compression"); and small price increases.
Given the relatively small cost to employers of modest increases in the minimum wage, these adjustment mechanisms appear to be more than sufficient to avoid employment losses, even for employers with a large share of low-wage workers
underlines are mine.
This is the most complete survey of studies I’ve seen (and I’ve looked) and an interesting/accessible read. It shows that nationally each of 7 min wage increases since 1989 have actually resulted in increased employment opportunities for low wage earners (0.11% in 1990 ,0.13%,0.08%,0.08%,0.02%,0.03% and 0.03% in 2009 our most recent increase). Those increases are all small (less than 1%) but all positive and it is normalized by the general increase in min wage jobs since 1989.
The study moves on beyond this debate to explain why employment levels for low wage earners has not been affected much namely thorough consideration of 10 secondary adjustments corporation have made (other than the feared higher product prices) in response to actual min wage hikes (e.g. reduction in turnover rate, reorganized workflows improving efficiencies, wage compression [all levels except apparently the CEOs], reduction in profits [which have soared since 2000], better morale & harder work thru more motivated employees, stimulus effect, etc.).
As a result of these various alternative channels of adjustment, the institutional model suggests that the minimum wage "may have, particularly in the short-run, an approximately zero or small positive employment effect.
Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.
The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms' overall costs and only modest relative to the wages paid to low-wage workers. In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment. Employers can reduce hours, non-wage benefits, or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity (from reorganizing production to increasing training), increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.
And here is another study (not quite as comprehensive) from UCB (that’s Berkeley for you southerners) focusing on adjacent areas where one state has had a min wage increase while the other has not.
It limits discussion to close local areas and is therefore not as national in scope as the CEPR study but they claim it’s better.
We use policy discontinuities at state borders to identify the effects of minimum wages on earnings and employment in restaurants and other low-wage sectors. Our approach generalizes the case study method by considering all local differences in minimum wage policies between 1990 and 2006. We compare all contiguous county pairs in the U.S. that straddle a state border and find no adverse employment effects. We show that traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies. Our findings are robust to allowing for long term effects of minimum wage changes.
These caveats notwithstanding, our results explain the sometimes conflicting results in the existing minimum wage literature. For the range of minimum wage increases over the past several decades, methodologies using local com- parisons provide more reliable estimates by controlling for heterogeneity in employment growth. These estimates suggest no detectable employment losses from the kind of min- imum wage increases we have seen in the United States. Our analysis highlights the importance of accounting for such heterogeneity in future work on this topic.
OTOH, conservatives often point to 2008 book Minimum Wages by Neumark and Wascher (which I own) or a 2012 paper "Are the Effects of Minimum Wage Increases Always Small? New Evidence from a Case Study of New York State.”]2012 paper by Sabia, Burkhauser, Hansen.
The CEPR considered over 300 studies since 2000, including Neumark’s work/book, and the Sabia/Burkhasuer/Hansen paper (which they said was far too limited due to only one case being studied).
It is interesting to me that these conservatives latched on to the first sentence of the conclusion to Chapter 3 of Neumark/Wascher book which said:
In sum, we view the literature - when read broadly and critically - as largely solidifying the view that minimum wages reduce employment of low-skilled workers, and as suggesting that the low-wage labor market can be reasonably approximated by the neoclassical competitive model.
and ignore the rest of the paragraph which says other approaches to “improving the economic condition of those at the bottom of the income dsitribution” need to be considered as an intro to the rest of the book which calls for federally-funded job training programs which is decried by most of the RW in this country.
It should be noted that the CEPR and UCB papers are not of a “bleeding heart liberal” nature but focus on economic realities in recent years.
When you add the “bleeding heart liberal” factor (as I do), there is really no reason not to raise the min wage to $10.10 across the board (for non-dependent adults) which enables, for instance, a 2 min wage earner family with 2 children to attain a the “living wage” in Shelby County TN which is $19.33/hour.
* Aside about federally funded contracts: I looked into this a good bit but could not find adequate data (isolated to federally funded contracts). So I’ll give my impressions as one working inside the world of defense contracting with a fair amount of “lingo” thrown in. I suspect true min wage earners are limited to well under 5% of total employees on defense contracts. Typical contracted period-of-performances (“PoP”) are 1-3 years basic with up to 10 years of options and extensions to those options are frequently granted. Contracted rates are allowed to increase for cost of living (typically 0-1.2%/year) for direct wages throughout the contract (making replacement of older more expensive workers necessary). But the bigger allowable increases are in indirect “Overhead” rates (nominally for office supplies, employment spaces, specialized facilities, computers, fringe benefits) and “General and Administrative (G&A)” rates (marketeers, certain R&D, bid and proposal costs, and non-direct personnel - janitors/admin personnel/chief executive officers). They are also allowed to be adjusted each year but with less scrutiny (usually the last matter discussed in a negotiation at a proverbial 4:59pm on Friday). I’ve seen a sustained increases in G&A of 8%/year on a large (>1000 people) 3+6 year “option” contract (but that is clearly anecdotal). Also because requirements changes occur frequently on long contracts, "equitable adjustments” are frequently made allowing much cost growth (some warranted, some unwarranted).
The point is that although a 39% increase in min wage sounds like a big raise, its effects on overall contracted rates will be minimum (and slowly phased in) and dwarfed by the increases in allowable G&A, overhead rates and equitable adjustments. This both makes a mockery of both Obama’s grandstanding and on conservatives outcrying of “min wage increases will kill the economy".