The Battle Over the Minimum Wage

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The Battle Over the Minimum Wage

In recent months, the clamor for raising the minimum wage from the current rate of $7.25 an hour has grown louder. President Obama has called for an increase to $12.00 an hour. Organizations such as the Restaurants Opportunities Centers United and New York Communities for Change have demanded an increase to $15.00 an hour. Paul Krugman, writing in the New York Times in July 2015, insisted that “there’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.”1

That, of course, is the key issue. If raising the minimum wage motivates employers to hire fewer workers, the increase would actually do more harm to low-income workers by reducing the number of jobs at the bottom of the pay scale.

Krugman’s argument that this isn’t the case is based on research by University of California professor David Card and Princeton University professor Alan Krueger.

In their studies, published in 1994 and 2000, Card and Krueger compared fast-food restaurants in New Jersey, which increased the minimum wage for workers in 1992, with Pennsylvania, which did not raise the minimum wage.2, 3

The professors reported that the increase did not affect employment, and might have even had a small positive effect on employment.

But, as recently pointed out by Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor and senior fellow at the Manhattan Institute for Policy Research, the studies have major flaws.4

As she observes, “Card and Krueger do not include information on the portion of employment at minimum wage at any date in time. No information was given on whether the minimum wage law was binding, and to what extent, for this sample. The studies did not include information by county, such as income, unemployment, teen unemployment, labor force, and labor-force participation rates. Neither did [they] include changes in state taxes and franchise fees.”

“The regression statistics explain little variance, and practically none of the coefficients are significant. Card and Krueger infer that minimum-wage policy makes no difference. A more likely interpretation is that the equation excludes important variables.”

“Card and Krueger focus exclusively on fast-food establishments, but many other minimum-wage employment opportunities in the service industry, particularly the hospitality industry, are also likely affected.”

Furchtgott-Roth cites a more credible study, which was published by the National Bureau of Economic Research in December 2014, which reached the opposite conclusion...

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