July 31, 2006

More on the minimum wage

Whoa, I actually got a comment to one of my posts...thogek asks:

Many opposing minimum wage increases have cited basic economic supply-and-demand behaviors to explain their opposition. Raising legally-required minimum wages would artificially force an increase in the market cost of labor, which would resultingly force a decrease in the market demand for labor (as demand for a service goes down when the price goes up), thus contributing to a raise unemployment rates (since there become fewer jobs available for employment). I'd like to see the Democratic Party's (or anyone else's contesting) response to that argument.

Many supporters of minimum wage increases cite cases of Americans struggling to to support a family on minimum wage as motivating reasons, to help these families from falling deeper into poverty. I'd like to see statistics on what proportion of the American population makes only minimum wages, and see those numbers broken down by age, marital status, dependant status, and other groups. Such information would provide great insight into the extent to which Americans truly are attempting to support a family on minimum wage (i.e., whether or not this is actually as significant a problem as has been asserted), as opposed to (e.g.) cases of high-schoolers working part-time after-school jobs for extra pocket money. Those statistics may very well have been compiled by someone somewhere...

So, I thought I ought to find some cites for him. A quick Google search for "minimum wage increase" popped up this site which provides a lot of facts and figures. Under the Frequently Asked Questions link there is this:
Who are minimum wage workers?
An estimated 14.9 million workers (11% of the workforce) would benefit from an increase in the federal minimum wage to $7.25 by 2008. Of these workers, 6.6 million would be directly affected and 8.3 million would indirectly receive raises due to the spillover effect of a minimum wage increase. Of the total affected workers, 80% are adults and 59% are women. Over half (54%) work full time and another third (30%) work between 20 and 34 hours per week. More than one-quarter (26%) of the workers who would benefit from an increase to $7.25 are parents of children under age 18, including 1,395,000 single parents. The average minimum wage worker brings home over half (58%) of his or her family's weekly earnings.


Does the minimum wage cause job loss?
A 1998 EPI study failed to find any systematic, significant job loss associated with the 1996-97 minimum wage increase. In fact, following the most recent increase in the minimum wage in 1996-97, the low-wage labor market performed better than it had in decades (e.g., lower unemployment rates, increased average hourly wages, increased family income, decreased poverty rates). Studies of the 1990-91 federal minimum wage increase, as well as to studies by David Card and Alan Krueger of several state minimum wage increases, also found no measurable negative impact on employment. Finally, a recent Fiscal Policy Institute (FPI) study of state minimum wages found no evidence of negative employment effects on small businesses.

New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases. These models recognize that employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.
Here's a chart giving just the breakdown of workers affected by minimum wage, both directly (those actually earning minimum wage) and indirectly (those earning low wages who will benefit from the spillover effect of raising the minimum wage). Guess what? The vast majority of workers affected by a minimum wage increase are age of 20 or older. See? The answers are out there. I am not going to do any more of thodek's homework.


Thogek said...

Well, you could at least spell my name right. :-)

Thanks for the references. I did happen to run across that one site shortly after posting to your blog. The first part, about the minimum wage earner statistics, isn't quite what I was looking for, since it talks broadly of a group that will be directly affected by an increase (5% who make until $7.25/hr) and an estimated group (with no elaboration on the basis for the estimation, although perhaps a little more digging with unearth it) that is likely to be affected due to spillover effects (6% who make more than $7.25/hr). It also assumes that no jobs will be lost by the decrease in supply of jobs resulting from the degree of increase in cost of jobs.

The latter section you cite states that studies have failed to find a significant loss of jobs resulting from increases minimum wages, but more specific references to those studies would be helpful, especially considering how easily and often statistics are misunderstood and misrepresented. (I'm not claiming that those claims are wrong, just that I don't see enough to corroborate them as yet.)

And citing "new economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases" is definitely interesting (although it would be more interesting if we had some description/explanation of them), but do keep in mind that there are readily available and very basic models supporting the opposite outcome, as well.

BTW, whining about "doing [my] homework" is a bit absurd. If you're going to make claims, it's up to you to do your homework to back them up, especially when asked about them. :-)

And yes, answers are out there. The trouble is, they don't all agree with each other. I've since found plenty of references that claim both sides of the argument, but most of them don't explain their bases very well.

Definitely a subject that's not as crystal clear either way as either side would appear everyone to believe.


Thogek said...

BTW, here's a small sampling of conflicting opinions that you might find interesting.

http://gopnews.blog.com/867927/ - argues that higher minimum wages reduces job performance motivation, reduces other employees' raises, and increases employment of illegal immigrants.

http://realthought.us/2006/07/30/minimum-wage/ - argues that the minimum wage affects the cost of living in addition to accelerating job loss.

OTOH, here's another site making the statistical case for minimum wage increases being good for small businesses and employment: http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=1648601. Although, again I'd like to see those statistics in the context of others, such as the trend in size of the overall workforce. E.g., one possible counter-explanation is that employment rates rose because unemployed workers left the state for other states with lower minimum wages. Failing to counter each of these possible explanations takes away from the overall argument...

So many facts... so many theories...

Discussion is good. :-)