
Historical Data of Minimum Wage Increases and Employment Levels (2016) [pdf] - fouc
http://www.nelp.org/content/uploads/NELP-Data-Brief-Raise-Wages-Kill-Jobs-No-Correlation.pdf
======
trendia
This report suffers from a serious flaw: it uses federal minimum wage
increases rather than state or local increases. By doing so, they have no
control to compare to and thus cannot show causation. For instance, suppose
that federal min wage hikes only occur during periods of economic strength. It
would seem that periods following min wage hikes have better outcomes than
otherwise. However, the economic growth is not the _cause_ of the economic
strenfth but a response.

The proper way to do min wgae testing is by comparing neighboring districts.
If one county has a min wage hike its neighbors do not, then you can compare
the outcomes of the affected county and use the other as a control.

When this is done, the effects of min wage hikes become clear: in the short
run, employees are not immediately fired because businesses stay open.
However, in the long run, fewer employment opportunities are available. This
suggests that in some areas, a min wage hike can cause disemployment effects
over the long term [0]

[0] [http://voxeu.org/article/long-run-employment-effects-
minimum...](http://voxeu.org/article/long-run-employment-effects-minimum-wage)

~~~
crdoconnor
[http://nelp.3cdn.net/98b449fce61fca7d43_j1m6iizwd.pdf](http://nelp.3cdn.net/98b449fce61fca7d43_j1m6iizwd.pdf)

This has been done. Dube, Lester, Reich is a very rigorous study that compares
all minimum wage increases _across_ all state borders between 1990 and 2006.
It controls for most things.

No effect on employment was found, period.

~~~
trendia
Dube, Lester, Reich focused on the short run. The paper I linked (Sorkin)
agreed with their findings in the short run

> This short-run employment response is in line with both our estimates in
> this paper, as well as recent work studying the restaurant industry, such as
> Dube, Lester, and Reich (2010), Neumark, Salas, and Wascher (2014), and
> Allegretto et al. (2016)

The disagreement is over the long run effects:

> We find that the short-run employment effect captures only a small share of
> the long-run employment effect generated in the model. ...

> much of the recent research suggesting that minimum wage hikes barely reduce
> the number of jobs in the short run should be taken with caution. The
> longer-run disemployment effects are potentially large.

So when you say "no effect was found" it's because they were only looking in
the short run.

~~~
crdoconnor
>Dube, Lester, Reich focused on the short run.

Umm... no. From the abstract:

>Our findings are robust to allowing for long-term effects of minimum wage
changes

Read the paper. Seriously.

~~~
fiter
That paper does not give a lot of motivation for why it uses the control that
most strongly changes the results: heterogeneous (space) time variance. Why
would it look like minimum wage increases decrease employment when considering
US macroeconomic trends, but not when considering finer grained trends? If you
increase your minimum wage you're losing out on employment compared to the US
as a whole but locally there's no change in employment levels.

~~~
crdoconnor
It does give the motivation:

"We show that this heterogeneity is spatial in nature. We also show that in
the presence of such spatial heterogeneity, the precision of the individual
case study estimates is overstated. By essentially pooling all such local
comparisons and allowing for spatial autocorrelation, we address the dual
problems of omitted variables bias and bias in the estimated standard errors"

~~~
fiter
That states an intuitive statistical fact about spacial unevenness of
economics but it does not necessarily correspond to a reasoning why you should
add it as a variable.

Based on the abstract of this paper, we don't know whether adding a variable
will decrease or increase the bias:
[http://www.sas.rochester.edu/psc/clarke/405/Omit.pdf](http://www.sas.rochester.edu/psc/clarke/405/Omit.pdf)

------
bmelton
At the risk of coming across like a naysayer, this paper omits a lot of
crucial details. The obvious, and most usually contested metric is not whether
or not the economy goes up or down, but by how much it might have gone up or
down in the absence of a minimum wage policy. A year-over-year growth of 82%
_might_ be meaningful, but without knowing whether it would have been 60% or
120% otherwise, doesn't really tell us what we need to know.

Less obvious is the effect this has on any individual business. If there are
10 restaurants in TownX, and TownX raises the minimum wage, we don't know how
many of those restaurants survived or thrived as the result of the wage
increase just because the restaurant economy went up whatever percent. If six
of the smaller restaurants had to close, with the other four expanding to fill
the holes they left, is it a net good if we're simply concentrating the wealth
away from the small business owner into the hands of national chains?

------
wolco
I believe this to be true overall. McDonald's or bigger places wouldn't hire
less people, if they could get away with lower staff levels they already would
have lowered them.

For small business it's one percent or less change per employee.

~~~
privong
> McDonald's or bigger places wouldn't hire less people, if they could get
> away with lower staff levels they already would have lowered them.

To zeroth order, that seems reasonable. But the added expenses might shift the
cost-benefit analysis enough to add motivation to explore automation or other
changes to reduce the workforce. The necessary R&D or capital costs might have
not been attractive with lower wages, but could become attractive with higher
wages.

~~~
Noos
You can't automate to a level to replace them. You can automate order taking,
but the human order taker who does it also cleans the store, fills and
packages orders, leaves the store to clean the outside and dumps trash,
answers customer questions about food, troubleshoots register issues, balances
their drawer, and more.

And something as simple as checking straws and napkins or making sure the
floor by the soda machine is clean can't be automated cheaply. Automation in
general is too fragile to handle the demands of that kind of work.

~~~
setra
These are all environments designed for humans. Vending machines already get
warm food, and fresh coffee to me. The system once automated will not look
just like the current human paradigm.

~~~
Noos
There's a lot to operating a physical establishment that machines can't do
without reducing the experience. Something as simple as cleaning the tables
will not be automated. You need people to provide service in a restaurant,
which is why automats generally never take on.

And we already have a model of what it will look like, laundromats. That's
what people are aiming for, the patron doing a lot of the work with maybe one
person to oversee and provide special services like dry cleaning. I don't
think that would be an improvement in food service.

------
arkis22
>In the 22 instances when the federal minimum wage went up, the change in
total private employment after one year was positive 15 out of 22 times

>What’s more, looking more closely at the relative handful of instances in
which employment decreased—whether total employment, or employment in our key
indicator sectors—it is also clear that those declines were likely driven by
factors other than the higher minimum wage.

The factor they mention that drove those declines is recession. Good for them
for looking at that, but it doesn't look like they checked the flip side of
this: those increases in employment they're using as evidence were driven by
factors OTHER than the increase of minimum wage.

What was the economy growing at during those years where employment went up?
If the falls accompany recession, maybe the increases coincide with crests in
growth rates. Was employment starting off a low base? Was the growth rate high
enough for employers to easily eat the cost increase? How much was the
increase and what was the wage increased from? How does it compare to
inflation in the area?

>Significantly, the study finds that, unlike small wage increases, a $15
minimum wage generates billions in new consumer spending that offsets most of
the higher costs to businesses.

So they're admitting it doesn't offset all of the higher costs? Why would that
then lead to increased employment?

I understand that people making minimum wage find it almost impossible to save
money, but this doesn't solve that problem. Even if you have more people
making $15 an hour, businesses are offsetting that cost by raising prices. It
seems like all you've done is create arbitrary inflation.

So who's better off after the wage increase? Looks to me like the only winner
is the government. They just sneakily mandated nominal tax increase. But even
then that's just the short term.

~~~
matt4077
The consequences are hard to predict because it involves multiple antagonistic
feedback loops, and even whatever you define as "value" at the beginning might
end up shifting over time.

Here's one way of looking at it that I think cuts a bit through all that. It
starts with the following assumption:

\- People earning minimum wage now, as well as people earning the higher
minimum wage in the future spend a larger fraction of their income than
average.

I believe this is almost axiomatically true: Minimum-wage earners by
definition have below average income, and the fraction of income that goes
into savings and investments rises with income.

Now answer the following less-obvious question: What (rough) % of jobs
currently paying less than 15$ actually produce value exceeding those 15$?

Example: someone at McDonalds get 7.25$/h. Their work serves 16 customers in
that hour (in reality they may prepare the food for 30 customers, but split
those with a cashier etc, but that doesn't matteR).

That means each customer currently pays $7.25/15 = 50c for that labor.

Raising the minimum wage would double those costs to $1. Let's say the meal
comes out at $12.50 instead of $12.

If people still feel they're getting more value out of that meal they will
continue to buy. That will result in a net transfer of wealth to below-average
earners, who are more likely to spend it, leading to the projected increase in
employment.

If people balk at the price and start cooking their own food, people working
at McDonalds will lose their jobs.

In reality it's almost certain to be a combination of both

~~~
arkis22
A real net transfer of wealth only happens if their increase in wages outpaces
the increase in costs that they pay because of everyone else's higher wages.

Current costs (at least part of them) are a reflection of the cost of
unskilled labor. What impact does increasing the nominal cost of unskilled
labor have?

The relationship between costs and labor haven't changed. I don't think it's
logical to think that without changing that relationship you've somehow
managed to make them wealthier.

------
strathmeyer
Yes the correlation is lawmakers are more likely to raise the minimum wage
when employment levels are high.

~~~
jbuzbee
Agreed. In a robust employment market, lawmakers will raise the minimum wage
to a level that is still lower than the market rate. The effect is pretty much
zilch except for the lowest of the low-level employee. For them, the minimum
wage acts as a safety net.

------
ctw
Ontario recently announced raising minimum wage from $11.40 to $15 by 2019.
I've seen a negative response to this by everyone I know, as many of them say
there will be less jobs available and consumer prices will go up. I thought
the change would be great though, so I found it interesting that the first
source in the further reading section of this report has this in its
conclusion:

> "Businesses will absorb the additional 3.3 percent in payroll costs partly
> through savings on employee turnover costs, higher worker productivity
> gains, and some automation (the substitution effect). Most of the increase
> in costs will likely be passed on to consumers via increased prices. Since
> labor costs make up only about one-fourth of operating costs, consumer
> prices will increase only slightly—about 0.14 percent per year over the
> phase-in period." [0]

So yes, there will be automation, and yes, there will be increased prices, but
neither of those negative points come close to negating the huge benefit of
increased pay.

> "Based on our analysis, we conclude that the proposed minimum wage will have
> its intended effects in improving incomes for low-wage workers. Any effects
> on employment and overall economic growth are likely to be small. The net
> impact of the policy will therefore be very positive." [0]

[0] [http://irle.berkeley.edu/files/2016/The-Effects-
of-a-15-Mini...](http://irle.berkeley.edu/files/2016/The-Effects-
of-a-15-Minimum-Wage-in-New-York-State.pdf)

------
jbuzbee
No matter the methodology in this report, common sense tells otherwise. It's a
basic economic tenet that as the price of a good or service raises, less is
purchased (Except for Giffen goods [1]).

As a thought exercise, consider the effect of raising the minimum wage to $100
in a town. What would happen to restaurants in that town? They would have to
raise their prices drastically to cover the new expenses. Customers who were
accustomed to eating out would flinch at the much higher prices and either eat
at home or go to a neighboring town. The end result would be closed
restaurants in the town and fewer jobs. Of course with a much smaller raise in
the minimum wage in the town, the effect would likely be lost in the standard
noise of restaurants closing and opening but the effect would still be true.

[1]
[https://en.wikipedia.org/wiki/Giffen_good](https://en.wikipedia.org/wiki/Giffen_good)

~~~
crdoconnor
There are three effects minimum wages can have:

1) They come directly from profits

2) They cause a commensurate price rise (inflation)

3) The business shuts down because it can no longer afford labor it requires
to operate effectively

If you raised it to $100, #3 would happen for most businesses.

In a competitive market, if you raised it a few dollars, #1 would happen.

In a non-competitive (monopoly) market, if you raised it a few dollars, #2
would happen.

~~~
fiter
In a competitive market where less labor is an option, companies that use less
labor would have a larger advantage thanks to a higher minimum wage. This
would encourage automation and decrease employment.

In a competitive market where using less labor is not an option, wouldn't #2
happen? All businesses would have the same cost increase and could expect to
raise prices.

~~~
crdoconnor
I've seen no study which demonstrated any causal link between raising the
minimum wage and technological progress in automation and frankly I'd be very
surprised if there were any connection. Research money doesn't tend to come
from angry Burger King franchisees.

I have, however, seen restaurant lobby groups _threatening_ an unlikely robot
takeover of restaurant labor if minimum wages should rise:

[https://mgtvkron.files.wordpress.com/2014/07/bad-idea-
billbo...](https://mgtvkron.files.wordpress.com/2014/07/bad-idea-
billboard.jpg)

I suspect progress in automation follows it's own path and when it destroys
jobs, it destroys jobs such that no amount of wage cutting will impede its
progress.

~~~
fiter
I didnt say anything about robots.

Labor efficiency is not just about having a robot take your order, it's the
difference between a McDonald's where all the parts are pre-assembles
elsewhere and a mom and pop joint where someone is hand-forming the patties.

Anyway, there is another article in this thread that explains how minimum wage
increases tend to force the less efficient mom and pop joint out of business,
thus accelerating the labor efficiency progress.

I'm for minimum wage increases, but I also believe that certain jobs will not
exist with a high enough minimum wage. Any increase in minimum wage probably
needs to be met with an increase in training/education.

------
wonder_er
Related to raising minimum wages - why is the purchasing power of our current
wages always falling?

If the purchasing power of $10 was constant over ten years, minimum wage would
not need to go up. If the purchasing power of $10 went UP over ten years, that
would be good for the poorest among us, yes?

~~~
walshemj
Deflation is not good for an economy or poor people either

------
sbuttgereit
I see something like this and first look at the source. My first question is
why would I trust a study from any interest group any more than I would trust
a study from our favorite boogeyman on biased studies, the Tobacco industry?

Without reading the study I can already guess the conclusion. Naturally, their
being an interest group doesn't mean the conclusion is wrong, but it does seem
unlikely they would push a study that had mixed conclusions or found something
contradictory to their study. I wonder how many times, for example, they rebut
nameless "critics" of their position and set out uncited positions of those
critics rather than specific examples and studies.

------
edoceo
Recently Seattle did a min-wage increase. Many small businesses complained
loudly but they are still open, they simply raised their prices. My fav pizza
joint had their price increase rolled out before the pay rise went into
effect. Which gave the owners a nice little spread for a few months, to invest
in tools to reduce labor requirement.

At $12/hr I earn enough to buy 2 lunch specials (at $6/ea). Now at $15/hr I
earn enough to buy 1.875 specials at $8/ea! And that one manager I didn't like
got fired. Yay economy! /s

~~~
neuland
This may be me suffering from Poe's law, but it seems to me that you are
demonstrably worse off, even if the restaurant stayed open and you kept your
job. Before the min-wage increase you could afford 2 lunch specials and now
only 1.875, despite your income going up. Inflation gobbled up all of the
gains.

------
gregw2
My concern with minimum wage increases is that landlords then suck up much of
the gains. They stand the most to gain moreso than workers. Is there any truth
to that?

------
wordsarewind
In addition to the lack of a control and the sole focus on the federal minimum
wage which in many cases is simply irrelevant, the basic failure in this study
is the use of nominal instead of real wages. The inflation-adjusted federal
minimum wage has not changed significantly in decades, falling below, only to
be corrected up to, the 1990 level.[1] Honestly, any empirical evidence that
challenges the classic economic models by including the potential effects of
increased purchasing power on job growth, among other things, must use
inflation-adjusted wages. Furthermore, littering a report with quotes from
conservatives, as if to show their inexplicable obsessions with an obviously
absurd position is pathetic. This is not some crackpot theory bandied around
to keep the boot on the poor beggar's neck, it follows from a logically sound,
although perhaps overly simplistic, model which is the basis of our
understanding of price controls, including minimum wage.

[1] [https://fredblog.stlouisfed.org/2015/07/the-real-minimum-
wag...](https://fredblog.stlouisfed.org/2015/07/the-real-minimum-wage/)

(Edited wage level analysis and cited source.)

------
timbuckley
There must be SOME minimum wage level at which jobs would be lost. (If you
doubt this, consider how a $100 minimum wage would work.) The question is,
what is the maximum minimum-wage before jobs are lost?

