Research on the Minimum Wage and Employment.

• Author: Brannon, Ike

* "Myth or Measurement: What Does the New Minimum Wage Research Say about Minimum Wages and Job Loss in the United States?" by David Neumark and Peter Shirley. NBER Working Paper no. 28388, January 2021.

There is a sense--abetted by the media--that economics is divided on the effect of a minimum wage on employment. It's certainly an impression that many economists have tried to foster. For instance, an oft-cited 2015 survey by the University of Chicago's Initiative on Global Markets found that one-fourth of economists surveyed (mostly elite ones with some political experience) reject the idea that a minimum wage increase would reduce jobs, while another 40% said its effect is uncertain.

In 1994, David Card and Alan Krueger published "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania" (American Economic Review 84[4]: 772-793). It purported to show that a minimum wage increase in New Jersey resulted in higher employment in chain fast-food restaurants as compared to the Pennsylvania communities directly across the border where the minimum wage was unchanged. The article triggered a flurry of new studies hoping to replicate its results.

David Neumark of the University of California, Irvine and William Wascher of the Federal Reserve Board of Governors reviewed Card and Krueger's data ("Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws," Industrial and Labor Relations Review 46[1]: 55-81 [1992]) and found myriad data coding errors in Card and Krueger's research that Neumark and Wascher's own work suggested drove most of Card and Krueger's counterintuitive results. Neumark and Wascher's analysis using corrected data found that the New Jersey minimum wage increase did indeed reduce employment.

The competing papers cleaved the labor economist community, with liberal-leaning members embracing Card and Krueger's work and conservative-leaning ones supporting Neumark and Wascher's. This left the impression to many that the question is unsettled.

Since those studies appeared, there have been two increases in the federal minimum wage and a number of states and municipalities have raised their own minimum wage. The changes over time and differences across states create enough variation to ostensibly discern the effect an increase has on employment levels, and researchers have produced a raft of such analyses. Neumark has collected these studies and attempted an...