In other words, the only valid conclusions come from studies that compare changes among close or contiguous states or subareas of states for example, Dube, Lester, and Reich A number of studies using narrow geographic comparisons find employment effects that are closer to zero and not statistically significant for both teenagers and restaurant workers.
The studies argue that their results differ because comparisons between distant states confound actual minimum wage effects with other associated negative shocks to low-skill labor markets. Some follow-up studies, however, suggest that limiting comparisons to geographically proximate areas generates misleading evidence of no job loss effects from minimum wages. Pointing to evidence that minimum wages tend to be raised when labor markets are tight, this research suggests that, among nearby states that are similar in other respects, minimum wage increases are more likely to be associated with positive shocks, obscuring the actual negative effects of minimum wages.
Some new strategies in recent studies have also found generally stronger evidence of job loss for low-skilled workers. For example, Clemens and Wither compare job changes within states between workers who received federal minimum wage increases because of lower state minimums and others whose wages were low but not low enough to be directly affected. How do we summarize this evidence? Many studies over the years find that higher minimum wages reduce employment of teens and low-skilled workers more generally.
Recent exceptions that find no employment effects typically use a particular version of estimation methods with close geographic controls that may obscure job losses. Recent research using a wider variety of methods to address the problem of comparison states tends to confirm earlier findings of job loss.
Coupled with critiques of the methods that generate little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested.
Despite the evidence of job loss, policymakers and the voting public have raised minimum wages frequently and sometimes substantially in recent years. Since the last federal increase in , 23 states have raised their minimum wage. In these states, minimum wages in averaged If these higher minimum wages have in fact lowered employment opportunities, this could have implications for changes in aggregate employment over this period. Figure 1 Percent difference between state and federal minimum wages, June Note that more states 31 had minimums above the federal level just before the Great Recession than do now Figure 2.
The average relative to the federal minimum was nearly three times as high at To compare the average change across states between and , I account for the smaller number of states with higher minimums in and their lower levels, and weight the states by their working-age population. I find that minimum wages were roughly Thus, between the federal increases in —09 and recent state increases, the minimum wage has grown only slightly faster than average wages in the economy—around 4.
Figure 2 Percent difference between state and federal minimum wages, June From the research findings cited earlier, one can roughly translate these minimum wage increases into the overall job count.
Some of the larger estimates are from studies that are likely to receive more scrutiny in the future. If we instead use the larger 16—24 age group and apply the smaller elasticity to reflect that a smaller share of this group is affected, the crude estimate of missing jobs rises to about 75, Moreover, if some very low-skilled older adults also are affected as suggested by Clemens and Wither , the number could easily be twice as high, although there is much less evidence on older workers.
Thus, allowing for the possibility of larger job loss effects, based on other studies, and possible job losses among older low-skilled adults, a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about , to ,, relative to the period just before the Great Recession. While the imposition of a minimum wage on a monopsony employer could increase employment and wages at the same time, the possibility is generally regarded as empirically unimportant, given the rarity of cases of monopsony power in labor markets.
However, some studies have found that increases in the minimum wage have led to either increased employment or to no significant reductions in employment. These results appear to contradict the competitive model of demand and supply in the labor market, which predicts that an increase in the minimum wage will lead to a reduction in employment and an increase in unemployment.
The study that sparked the controversy was an analysis by David Card and Alan Krueger of employment in the fast food industry in Pennsylvania and New Jersey.
There was no statistically significant change in employment in the New Jersey franchises, but employment fell in the Pennsylvania franchises. Do minimum wages reduce employment or not? Some economists interpreted the Card and Krueger results as demonstrating widespread monopsony power in the labor market. Economist Alan Manning notes that the competitive model implies that a firm that pays a penny less than the market equilibrium wage will have zero employees.
But, Mr. Manning notes that there are non-wage attributes to any job that, together with the cost of changing jobs, result in individual employers facing upward-sloping supply curves for labor and thus giving them monopsony power. And, as we have seen, a firm with monopsony power may respond to an increase in the minimum wage by increasing employment.
The difficulty with implementing this conclusion on a national basis is that, even if firms do have a degree of monopsony power, it is impossible to determine just how much power any one firm has and by how much the minimum wage could be increased for each firm. As a result, even if it were true that firms had such monopsony power, it would not follow that an increase in the minimum wage would be appropriate.
Even the finding that an increase in the minimum wage may not reduce employment has been called into question. First, there are many empirical studies that suggest that increases in the minimum wage do reduce employment.
This finding was more in line with other empirical work. Further, economists point out that jobs have nonwage elements. Minimum wage systems should not be seen or used in isolation, but should be designed in a way to supplement and reinforce other social and employment policies. Several types of measures can be used to tackle income and labour market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises.
The purpose of a minimum wage, which sets a floor, should also be distinguished from collective bargaining, which can be used to set wages above an existing floor. Figure 1 shows a hypothetical wage distribution with a "minimum wage zone" and a "collective bargaining zone" which can be used to establish minimum standards and to set wages above an existing floor.
Figure 2 illustrates that the effectiveness of minimum wages depends on many factors, including the extent to which they afford protection to all workers in an employment relationship, including women, and youth and migrant workers, regardless of their contractual arrangements, as well as all industries and occupations in the economy coverage ; whether they are set and adjusted at an adequate level that covers the needs of workers and their families, while taking into account economic factors level ; and whether employers comply with minimum wage regulations compliance.
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