For decades, debates over the minimum wage have been tense among
advocates, policymakers, and professional researchers alike.
While professional economists were once broadly skeptical of the
benefits of a minimum wage, that consensus has eroded.
Shifts in the views of media, advocates, policymakers, and
researchers each have their own story. A striking example comes
from the New York Times. In 1987, the Times
editorialized that “The Right Minimum Wage” is $0.1 But in 2015,
it opined that “fifteen dollars, phased in gradually … would be
adequate and feasible.”2 Even more recently, it claimed that
a living wage is an antidepressant. It is a sleep aid.
A diet. A stress reliever. It is a contraceptive, preventing
teenage pregnancy. It prevents premature death. It shields children
In the eyes of the Times, the minimum wage has taken a
30-year journey from zero to hero. There is no ill, it seems, that
a higher minimum wage cannot alleviate, if not outright cure.
Following decades of moderate minimum wage changes, select
cities and states have recently passed substantial increases. In
Seattle, San Francisco, and New York City, the minimum wage has
already reached the milestone of $15. Recent laws passed by
California, Illinois, Maryland, Massachusetts, New Jersey, and New
York call for statewide increases to $15 in the coming years. Early
in February of 2019, the U.S. House Committee on Education and
Labor held a hearing to advance the agenda to take a $15 wage floor
An erosion of the consensus among academic economists predates
this lurch in public policy. Cracks in this consensus emerged in
earnest when David Card and Alan Krueger wrote their book Myth
and Measurement: The New Economics of the Minimum Wage in the
1990s.5 Even so, a 2005 survey found that only
17 percent of economists favored increasing the federal minimum
wage from the then floor of $5.15 per hour to $6.15.6 A more
recent wave of research has coincided with a broader shift among
academic economists. In 2013, nearly half the respondents to a
survey by the University of Chicago agreed that a $9 federal
minimum wage would be “desirable policy.”7 In 2015,
only 26 percent of economists in a subsequent University of Chicago
survey worried that a $15 minimum wage would significantly reduce
employment for low-wage workers.8
Proponents of high minimum wages
argue that their position is supported by the best evidence, giving
them the scientific high ground. But does the research really
justify this confidence and the accompanying shift in the
conventional wisdom? Though proponents of a higher wage can cite
many papers to support their view, their reading of recent research
is incomplete. The research these proponents ignore has many
strengths, including transparent research methods, analyses
of high-quality data, and a truly randomized experiment. In
contrast to the research emphasized by advocates, the broader body
of work regularly finds that increases in minimum wages cause job
losses for individuals with low skill levels.
Another problem with advocates’ calls for a much higher minimum
wage is that the theoretical basis for their claims is far more
limited than they seem to realize. Advocates offer rationales for
why wage rates might be suppressed relative to competitive market
values. These arguments are reasonable to a point, but they are a
weak basis for making claims about the effects of large minimum
Third, economists’ empirical methods have blind spots. Notably,
firms’ responses to minimum wage changes can occur with nuanced
dynamics. I discuss why economists’ methods will predictably fail
to capture such dynamics in their totality.
Finally, the details of employees’ schedules, perks, fringe
benefits, and the organization of the workplace are central to
firms’ management of both their costs and productivity. Yet data on
many dimensions of workers’ relationships with their employers are
incomplete, if not entirely lacking. Consequently, empirical
evidence tends to understate the minimum wage’s negative effects
and overstate its benefits.
What Can We Conclude from Recent Research?
Media coverage of minimum wage changes provides a window into
the minimum wage research landscape. Changes in states’ minimum
wage rates bring news stories on the wage gains workers will
receive and the number of workers who are ostensibly poised to
receive them. As reported on December 27, 2018, in a headline from
USA Today, “From California to New York, States Are
Raising Minimum Wages in 2019 for 17 Million Workers.”9 The article
does not consider that some of those workers may lose employment
under the higher wage. It does not mention how employers might
offset the minimum wage’s effects on their costs or how such
changes might affect workers’ lives.
Where do the authors of such articles turn for their facts? The
USA Today article draws on calculations by the National
Employment Law Project (NELP). Similar articles from CBS, NPR, and
other news outlets draw on calculations from the Economic Policy
Institute (EPI).10 In turn, these organizations cite
academic research to support their views.
Minimum wage analyses from NELP and EPI draw on research papers
that have challenged the traditional view that minimum wage
increases reduce employment. Key research in this vein includes a
2010 paper by Arindrajit Dube, T. William Lester, and Michael
Reich;11 a 2011 paper by Sylvia Allegretto,
Dube, and Reich;12 a 2017 paper by Allegretto, Dube,
Reich, and Ben Zipperer;13 and a 2019 paper by Doruk Cengiz, Dube,
Attila Lindner, and Zipperer.14 Each of those papers analyzes a
large set of minimum wage changes enacted by U.S. states or the
federal government that spans several decades. In every case, the
authors conclude that there is no evidence to support the view that
minimum wage increases cause job losses. In a recent piece of
congressional testimony, Reich used this research to argue that
minimum wage increases up to $15 have “no negative employment
In addition to influencing policy discussions, the papers
previously referenced have been influential within the professional
research community. Importantly, these studies are not extreme
outliers. A 2016 analysis by Paul Wolfson and Dale Belman found
that the estimated effects of minimum wage increases on employment
have been, on average, quite small in recent studies.16
At the same time, a great deal of recent research finds that
minimum wage increases cause job losses among low-skilled
population groups. In the remainder of this section, I discuss four
strands of research that fit this description. In the first, a
number of papers use the same data to study the same minimum wage
changes as the papers referenced previously, but arrive at
different conclusions. The second strand of research analyzes more
compactly defined episodes of minimum wage increases within the
recent experience of U.S. cities and states. A third strand
analyzes minimum wage changes using high-quality administrative
data from Europe. Finally, I discuss a paper that analyzes a truly
randomized experiment involving the imposition of minimum wages in
an online labor market.
Research on the Long History of U.S. Minimum Wage Changes
The research most often discussed by U.S. media analyzes over
three decades of U.S. state and federal minimum wage changes. In
what follows, I focus on the substantive issues at stake in the
debate within this strand of research. Readers interested in
references to key entries in this debate can find a roadmap in the
Researchers estimate the effects of minimum wage changes by
making comparisons between states that increased their minimum
wages and states that did not. The goal is to infer whether an
increase in minimum wages led to the number of jobs changing
differently than it otherwise would have. The key question for
evaluating the quality of these analyses is whether the states
being compared are “good counterfactuals.” That is, do the states
being compared reliably allow us to infer how employment would have
changed if states had not increased their minimum wages? Debates
between researchers are in large part debates over which approaches
to selecting comparisons generate “good counterfactuals” and hence
In their 2008 book Minimum Wages, David Neumark and
William Wascher summarized existing research as being broadly
supportive of the view that minimum wages adversely affect
low-skilled workers.18 Card and Krueger’s work
notwithstanding, Neumark and Wascher argued that the weight of the
evidence implied that minimum wage increases reduce employment. In
their own empirical research, Neumark and Wascher have relied on
the broadest possible set of comparisons between states that
increased minimum wages and states that did not. In contrast,
papers finding that minimum wage changes have no effect on
employment typically rely on subsets of the available comparisons.
Because their comparisons are less selected, Neumark and Wascher’s
analyses are less prone to charges of data mining. This makes their
approach the natural default unless there is a compelling case that
their method would result in systematically biased estimates.
Critics of their research argue that such biases do exist and are
so severe that Neumark and Wascher’s estimates are not
The claim that a scholarly work lacks credibility is a strong
one, but does the strength of the evidence match the strength of
the claim? The answer is no, because there is remarkably little
fire behind the smoke. To date, direct evidence for the strengths
and weaknesses of alternative research methods is in surprisingly
short supply. In their own terminology, the biases alleged by Dube,
Lester, and Reich are “unobserved.” That is, their argument is not
built on evidence of specific economic forces that, in their
telling, give rise to systematic biases. If anything, states appear
to enact minimum wage increases when their labor markets are
expanding more rapidly than the labor markets in other states. This
will tend to bias analyses toward finding that minimum wage
increases have a positive effect on employment, which is the
opposite of what Neumark and Wascher’s critics allege.
As Neumark observes in a 2018 review of recent research, papers
using a variety of best-practice methodologies have concluded that
minimum wage increases reduce employment.19 Indeed,
several recent papers use methods that are designed to account for
precisely the kind of unobserved forces that Dube, Lester, and
Reich claim bias traditional minimum wage research. Two examples
that analyze roughly the same history of U.S. minimum wage changes
include a 2017 paper by David Powell and a 2012 paper by Yusuf
Baskaya and Yona Rubinstein.20 Both papers estimate substantial
negative effects of minimum wage increases on teen employment,
echoing the traditional research finding.
In summary, the segment of the minimum wage literature that
simultaneously analyzes three decades of minimum wage changes
remains contentious. Relative to Neumark and Wascher’s early
estimation frameworks, some methodologies for accounting for
nuanced biases yield smaller estimates, while others yield larger
estimates. Because direct evidence in favor of one approach and
against others is in short supply, strong conclusions based on this
strand of research alone are unwarranted.
Research on Recent U.S. Minimum Wage Changes
The debate described above is difficult to evaluate because key
differences between competing studies are opaque. The studies in
question attempt to analyze hundreds of distinct events
simultaneously. An advantage of this approach is that it may
provide evidence for the average effect of minimum wage increases
across a broad range of settings. But when estimates are in
dispute, a drawback of such an analysis is that it becomes
difficult to determine why competing studies of the same events
arrive at different conclusions.
A number of recent studies take an alternative approach: they
analyze compact historical episodes in isolation. The key benefit
of this approach is that differences between studies can be
transparently debated with reference to the events surrounding a
single historical episode. Transparency of this sort is crucial for
evaluating competing studies. For this reason, the approach of
focusing on compact historical episodes is standard practice in
other areas of economic research, including analyses of major
health and tax policy reforms.
My own work on the minimum wage has separately considered two
distinct historical episodes. In a recently published work, Michael
Wither and I estimate the effects of the federal minimum wage
changes enacted during the Great Recession.21 The
2007-2009 federal increases had greater effects in some states than
others, depending on the initial level of a state’s minimum wage.
We use data that follow individuals over time, which allows us to
separate minimum wage workers from workers with moderately higher
skills. We find that employment among minimum wage workers declined
far more in states that were “fully bound” by the federal minimum
wage changes than in states that were not. Notably, employment
among moderately higher-skilled individuals does not exhibit this
pattern; changes in the employment of these workers were comparable
between the two groups of states. This bolsters the case that our
analysis is not biased by differences in the severity of states’
underlying recessions. Indeed, housing market indicators reveal
that our estimates are more likely to be biased toward finding
positive effects of minimum wage increases than negative effects.
We estimate that the federal minimum wage increases enacted during
the Great Recession reduced employment among low-skilled
individuals by hundreds of thousands of jobs.
Like other minimum wage research that has drawn public
attention, our work has its detractors. Zipperer replicated the
findings Wither and I reported in an earlier version of our paper,
but he contested our interpretation and conclusions.22 Wither and
I responded to Zipperer’s critiques with a series of additional
analyses.23 We leave interested readers to digest
the details of this debate by reading the studies themselves.
A number of papers have analyzed state and local minimum wage
changes enacted in recent years. In a widely discussed study by
researchers at the University of Washington, administrative records
from Washington State’s unemployment insurance system were used to
analyze the effects of a recent series of increases in Seattle’s
minimum wage.24 The research team found evidence that
hours worked by low-wage employees declined substantially in the
wake of the series of increases. Indeed, the decrease for all these
workers together was so large that their overall earnings declined
slightly. Subsequent work by the Seattle team found evidence that
employment fell only a little, if at all, for workers with prior
experience in low-wage jobs.25 This suggests that employment declined
primarily because of reductions in hiring rather than increases in
At this point, readers may be unsurprised to learn that the
conclusions of the Seattle minimum wage study are in dispute. Most
notably, the study’s initial findings were contested in a memo from
Reich to the office of Seattle mayor Ed Murray.26 This memo
was complemented by critical analyses by Zipperer and John Schmitt,
which were disseminated through the EPI.27 In
revisions to their analyses, the Seattle team has responded to
several of the initial criticisms leveled against their work.
Although they have only modestly revised their original
conclusions, it is unclear what economists’ final verdict on this
episode will be.
Many U.S. states have enacted substantial minimum wage changes
in recent years. The early phases of these changes have been
analyzed in a 2017 paper by Radha Gopalan, Barton Hamilton, Ankit
Kalda, and David Sovich.28 These authors analyze administrative
employment records from Equifax, which allow them to track roughly
one million hourly wage workers. Using data from 2011 through 2015,
they find that establishments that employ low-wage workers reduced
employment following minimum wage increases. This occurred through
reductions in hiring rather than layoffs of existing low-wage
workers, which is consistent with the findings of the Seattle
minimum wage study.
In additional research, Michael Strain and I are analyzing
recent minimum wage changes using precommitted research
designs.29 That is, to avoid the pitfalls of data
mining, we are reporting the results of analyses to which we
committed after analyzing data that extended through 2015. Thus
far, our estimates suggest that the effects of recent minimum wage
changes have been highly varied. The largest of states’ minimum
wage increases are negatively associated with employment among
those in low-skilled groups. Further, the employment declines
associated with large minimum wage changes have grown in magnitude
as we have incorporated data from 2016, 2017, and 2018 into our
analyses. In contrast, small changes have had modest and possibly
positive relationships with employment.
Recent evidence points to important roles for subtle yet
conventional labor market forces. That is, the evidence suggests
that the dynamics of labor demand are crucial for understanding the
minimum wage’s effects. During the Great Recession, for example, a
combination of low demand and substantial churn may have set the
stage for the relatively sharp effects of the 2007-2009 federal
minimum wage increases on employment. In contrast, it may be the
case that only large minimum wage changes have large enough effects
on firms’ costs to alter their hiring during an economic expansion.
When labor markets are tight, firms may effectively ignore small
minimum wage increases, enabling such increases to have their
intended effects on wages.
Research from European Contexts
A number of recent papers have analyzed minimum wage changes
using high-quality administrative data from European countries.
Recent country-specific analyses examine Denmark, Greece, Hungary,
the Netherlands, Sweden, and Germany. While estimates vary
substantially among these analyses, each case provides evidence
that firms respond in traditional ways to increases in labor
Claus Kreiner, Daniel Reck, and Peer Skov use Danish
administrative data from 2012 to 2015 to analyze the employment
effects of an age-specific increase in the minimum wage.30 They find
that the higher wage floor applicable to 18-year-olds substantially
reduces their employment compared to 17-year-olds, for whom the
wage floor is much lower. The employment drop is large enough to
ensure that the total earnings of 18-year-olds are no greater than
the total earnings of 17-year-olds, despite their higher wage
Constantine Yannelis uses administrative employment records to
analyze reductions in Greece’s minimum wage rates.31 The minimum
wage changes he analyzes were implemented in 2012 in accordance
with International Monetary Fund bailout terms. These wage
reductions were disproportionately large for young workers relative
to older workers. Yannelis finds that these changes led firms to
significantly increase their employment of young workers relative
to older workers.
Peter Harasztosi and Attila Lindner analyze a large national
minimum wage increase enacted by Hungary.32 They use
firms’ administrative tax filings to classify the extent to which
each firm was affected and to track changes in firms’ employment
over time. Harasztosi and Lindner conclude that roughly 1 in 10
workers affected by Hungary’s dramatic minimum wage increase lost
employment. Because the wage increase was quite large, the wage
bills of strongly affected firms increased substantially. In this
setting, the authors find that the bulk of the minimum wage
increase’s costs were borne by consumers through increases in
Jan Kabatek looks at the Netherlands.33 Like
Denmark, this is a case of minimum wage rates that rise
significantly with age. Using data that track individuals over
time, Kabatek concludes that workers become substantially more
likely to lose their jobs in the two months prior to birthdays on
which their minimum wage rises. He finds that these individuals
gradually return to employment over subsequent months.
Emmanuel Saez, Benjamin Schoefer, and David Seim analyze Swedish
payroll tax reductions implemented between 2007 and
2009.34 These tax changes were meant to reduce
the cost of young workers to firms. From the perspective of firms,
the tax changes were economically similar to a reduction in
negotiated wage rates. Using Swedish administrative records, which
are renowned for their high quality, the authors found that these
tax changes led to substantial increases in the employment of
younger workers relative to older workers.
Finally, Marco Caliendo, Carsten Schröder, and Linda Wittbrodt
summarize research, including their own work with Alexandra
Fedorets and Malte Preuss, on the 2015 introduction of Germany’s
statutory minimum wage.35 The German experience was novel because
it involved a shift from collectively bargained wages to a
statutory minimum wage floor, as opposed to an increase in an
existing minimum wage. These authors conclude that the introduction
of the minimum wage caused a small reduction in the number of
low-wage jobs. Consistent with work on recent U.S. minimum wage
changes, employment declines have come primarily through reductions
in hiring rather than increases in firing. Among those individuals
with jobs, reductions in hours were large enough to ensure that the
monthly incomes of low-wage workers changed little.
An Actual Experiment
A final piece of research that deserves emphasis is a 2018 paper
by John Horton.36 He analyzes an online labor market in
which firms contract with workers for tasks including programming,
data entry, and graphic design. In contrast with the papers
discussed thus far, Horton identified an opportunity to deploy a
randomized controlled trial to study the effects of minimum wage
increases. As the designer of the study, he could impose
differences in firms’ minimum wage requirements through random
assignment. He finds that firms make significant shifts in the
workers they employ when they are required to pay higher wages. In
other words, they shift away from workers who are the least skilled
and toward workers who demonstrate higher productivity on past
jobs. High minimum wage rates thus reduce the employment
opportunities of workers who are less productive.
Does the Evidence Justify the Shift in the Traditional
Why has the consensus on minimum wages shifted? This is a
difficult question, and any answer is necessarily speculative. In
this section I discuss several issues that arguably are
underappreciated by the new conventional wisdom.
Mistake 1: An Incomplete Reading of the Recent Research
The new conventional wisdom has to an unwarranted degree focused
on the debate over the long history of minimum wage changes in the
United States — that is, it has focused on the research
discussed at the beginning of the previous section of this paper.
It has focused less on other lines of research. In particular, it
has focused less on recent research from European contexts,
including Denmark, Germany, Greece, Hungary, the Netherlands, and
Sweden, as well as on research that transparently analyzes compact
historical episodes in the U.S. experience.
The emphasis of the new conventional wisdom is unfortunate
because other lines of research have desirable features. In
research on the effects of taxes, unemployment benefits, and other
public policy initiatives, three attributes of studies have, with
good reason, emerged as attributes toward which researchers strive.
The first is a preference for data from individual-level
administrative records over both aggregate data and survey data.
The second is a preference for running experiments whenever
possible. The third is an emphasis on implementing transparent
The research that forms the basis of the new conventional wisdom
tends to lack all three of these attributes. Even when these
studies’ methods appear transparent and intuitive, opaque choices
tend to determine both the sets of events that are studied and the
comparisons underlying the estimates. In contrast, the research
with which many audiences are less familiar includes truly
randomized experiments and makes regular use of transparent methods
and individual-level administrative records.
Mistake 2: Shortcomings in the Application of Economic
In addition to taking a narrow view of the recent literature,
the shifting consensus on the minimum wage has roots in several
shortcomings in the application of basic economic ideas to
real-world markets. The first involves discussions of labor market
imperfections. The second involves the fact that there is more to a
job than its wage. The third involves the time horizons over which
firms can respond to changes in policy.
Conceptions of Perfect
Competition vs. Imperfect Competition. In economic theory,
the minimum wage’s effects depend on how wages are set within labor
markets. If a market is perfectly competitive, then pay aligns
perfectly with a worker’s productivity. Under perfect competition,
a binding minimum wage is by definition a wage that exceeds some
workers’ productivity. In this framework, a binding minimum wage
will inevitably cause some workers to be laid off by firms.
Contrast that with models of markets with imperfect competition.
The key feature of these models is that market wages are suppressed
relative to their perfectly competitive levels — that is,
workers are paid less than the value of what they produce.
Consequently, in these models it is possible for a minimum wage
increase to improve workers’ earnings without excluding them from
employment. Firms are willing to pay a minimum wage that exceeds
what they would otherwise have paid as long as that wage does not
exceed a given worker’s productivity. In discussions of such
models, “monopsony” and “frictions” are the jargon with which
readers may be increasingly familiar.
The first chapter of Alan Manning’s influential 2003 book
Monopsony in Motion begins with the following thought
experiment: What happens if an employer cuts the wage they pay
their workers by one cent?37 Because a penny is very small, the
answer to this question is nothing. From this thought experiment,
Manning concludes that “it is monopsony, not perfect competition,
that is the best simple model to describe the decision problem
facing an individual employer.”38 This shift in framing is of great
consequence. The textbook monopsony model is one in which a
modest minimum wage can actually increase employment among
low-skilled workers. It is a model in which the minimum wage can be
used to combat inefficiencies linked to employer market power.
But the transition from the one-penny thought experiment to a
monopsony-centric view of the labor market merits scrutiny. A
model’s importance stems from the power of its broad predictive and
explanatory content, not from an illusory to-the-penny precision.
Whether a competitive or monopsony-centric model is more useful
depends on key details of both the labor market and the policy
changes one is attempting to understand.
The practical implications of Manning’s thought experiment hinge
on the size of the frictions that give firms market power. Workers
do not leave their employers over pennies; it costs more than
pennies to find a new job. It is the cost of finding a new job that
determines the power held by a worker’s employer to set wages.
Both data and intuition suggest that employers wield only modest
market power over low-skilled workers. One need only enter a mall,
with its food court and retail outlets, to appreciate the large
number of employers to which most low-wage workers can potentially
apply. Real-world data concur; the value of the time it would take
most minimum wage workers to find a competitive job offer is
unlikely to exceed $1,000-$2,000.39 For full-time workers, these
amounts are equivalent to $0.50-$1.00 in hourly pay. A wage
differential of $1 is thus far more likely to lead workers to seek
new jobs than the penny from Manning’s thought experiment.
Real-world search costs appear to have quite modest implications
for the market power employers can exert over workers in low-wage
industries, such as food service and retail sales. The facts
suggest that the monopsony framework may be useful for analyzing
modest minimum wage increases from modest initial levels. But for
large minimum wage changes, a model approaching the benchmark of
perfect competition should be the more reliable guide.
Fringe Benefits and Other
Attributes of Jobs. Many analyses of the minimum wage
adopt a narrow view of relationships between workers and employers.
Specifically, they simplify the relationship to two factors: wages
and employment. In analyses of this sort, the minimum wage’s effect
on a worker’s well-being is deceptively simple. If the wage rises
and the worker remains employed, naïve models imply that the worker
is necessarily better off.
But in practice, when we negotiate with our employers, we
appreciate that jobs have many subtle but important
characteristics. Work hours can be at the convenience of the worker
or at the convenience of the firm. The pace of work can be fast or
slow, safer or riskier, and can require more or less mental energy.
Compensation can either include or exclude health insurance,
retirement contributions, and other benefits. A job’s location can
be more or less preferable, and opportunities for advancement
(within or outside the firm) can be more or less ample.
All these factors affect both workers’ well-being and firms’
bottom lines. Most minimum wage commentary sweeps these factors
under the rug, but nuanced models recognize that they are central
for understanding the minimum wage’s effects. Adjustments to
nonwage factors are among the most obvious and inexpensive
adjustments a firm can make. Reducing noncash compensation and
requiring increases in a worker’s effort are straightforward
ways for employers to align costs and revenues following minimum
wage increases. Crucially, actions along these margins will tend to
offset any wage increase’s effects on a worker’s well-being.
Because these factors are often unmeasured, our awareness of their
importance makes it appropriate to embrace humility regarding the
strength of the conclusions we can draw from available data.
Economists have long been aware that a job’s nonwage
characteristics can be central to its value to workers. In a 1986
chapter from the Handbook of Labor Economics, Sherwin
Rosen observes that the framework of “compensating wage
differentials” has been with the economics profession since Adam
Smith’s The Wealth of Nations.40 There has
recently been a wave of high-quality research on this theme.
Several recent papers highlight the value of worker-driven
schedules.41 One paper by Nicole Maestas, Kathleen
Mullen, David Powell, and others finds that workers are willing to
pay substantially for improvements in workplace
conditions.42 Complementary research by Isaac Sorkin
finds that nonwage aspects of jobs account for a large fraction of
total variation in workers’ valuations of jobs among different
Despite the obvious importance of nonwage factors, research on
the extent to which these factors are affected by minimum wage
increases is quite limited. Because of data limitations, the
primary nonwage factor that can be incorporated into minimum wage
studies is whether workers have employer-provided health insurance
(EPHI). Analyses of historical minimum wage changes tend to find
weak evidence of a relationship between minimum wage increases and
EPHI. In contrast, analyses of more recent minimum wage changes
tend to find negative effects.44 On a qualitatively different but
important margin, papers by Hyejin Ku and by Decio Coviello, Erika
Deserranno, and Nicola Persico find that low-productivity workers
increase their work effort in the wake of minimum wage
increases.45 But little if any evidence exists on a
rich set of potentially important margins, including the
flexibility of work schedules.
estimating the effects of minimum wage increases, economists
struggle to capture subtleties in the timing with which firms might
respond. An example involving the payment-processing technologies
in which fast-food chains can invest illustrates several
Fast-food chains can choose either employee-operated cash
registers or automated kiosks. An important aspect of this
choice is that it involves upfront investments in equipment that
may depreciate gradually over many years. For new firms, high
minimum wages may tip the cost calculation in favor of automated
kiosks. New entrants to the fast-food market may thus adopt less
labor-intensive business models soon after high minimum wages go
into effect. But for continuing firms, the calculation may be quite
different. This will be particularly true for those that made
investments in standard cash registers prior to a minimum wage
increase’s passage. If the minimum wage rises modestly, such firms
may continue operating with cash registers until their equipment
requires replacement. Consequently, their response to a minimum
wage increase might not occur until years after the change has gone
into effect. This difference between new entrants and continuing
firms highlights that a minimum wage change’s overall effects may
Economists have little evidence on how firms adjust their
capital investments in response to changes in minimum wages.
Efforts to study firms’ production technologies have to date been
indirect. For example, recent studies by Dan Aaronson and Brian
Phelan and by Grace Lordon and David Neumark find that minimum wage
increases predict declines in employment among workers in
occupations whose tasks are readily replaced with
technology.46 Related analyses emphasize the
productivity of the workers within each occupation. In his
randomized experiment in an online labor market, John Horton finds
evidence that firms shift from lower-productivity workers toward
higher-productivity workers. Lisa Kahn, Jonathan Meer, and I
similarly find that recent increases in states’ minimum wages
predict increases in the average age and education of workers in
Minimum wage changes often come with long lags between the dates
when they are legislated and the dates when they are implemented.
In an analysis of recent legislative histories, Duncan Hobbs,
Michael Strain, and I find that recent state-initiated minimum wage
increases had lags averaging six months between the date of their
passage and the date a first increase was implemented.48 Lags
between the date of legislation and the final date of multistep
increases are much longer.
Empirical methods in the minimum wage literature account poorly
for lags between legislative activity and implementation. When an
increase is signed into law, forward-thinking firms know to take
cost implications into account. Some firms may thus change their
technologies before a minimum wage increase goes into effect.
Firms’ forward-looking responses undermine the ways many economists
deploy statistical tests to estimate a minimum wage change’s
effects. When estimating those effects, economists worry that their
estimates will be biased if the labor markets in states that enact
minimum wage increases were trending differently than the labor
markets in other states. Unfortunately, these differential trends
cannot easily be distinguished from forward-looking responses of
firms. The standard practice in recent research has been to lump
these phenomena together — that is, forward-looking responses
have been conflated with “divergent pre-existing trends.” In turn,
they are assumed to be evidence that estimates are likely to be
biased. Standard practice thus biases researchers against detecting
negative effects of minimum wage increases on employment.
Although this bias remains pervasive in recent minimum wage
research, its relevance has been recognized for quite some time.
The implications of investments by forward-looking firms were
developed in papers by Sorkin and by Aaronson, Eric French, Sorkin,
and Ted To.49 A key empirical aspect of these
insights was highlighted in work by Jonathan Meer and Jeremy
West,50 who show that common techniques for
accounting for “divergent trends” may in fact bias analyses toward
incorrectly concluding that minimum wages have no effect on
employment. These authors show that in some cases this bias can be
resolved by analyzing employment growth rather than employment
levels. Although Cengiz, Dube, Lindner, and Zipperer have recently
criticized the empirical analysis of Meer and West, the theoretical
thread connecting the analyses of Meer and West to those of
Aaronson, French, Sorkin, and To is unchallenged. The key
conceptual point is strongly intuitive and appears to be well
Conclusion: Where Do We Go from Here?
The “Fight for $15” has shifted from the advocacy fringes to the
political mainstream. News media increasingly report that a $15
federal minimum wage would benefit low-skilled workers at little
cost. This essay pushes against that shift on several grounds: the
new conventional wisdom’s reading of recent evidence is incomplete,
its grounding in theory is far more limited than its supporters let
on, and it ignores significant blind spots in economists’ empirical
Because $15 wage floors have been narrowly and only recently
applied, there is no evidence to support the sweeping claim that a
$15 federal minimum wage would benefit disadvantaged households at
little cost. This is particularly true when we consider regions
where low housing and labor costs support the social and labor
market integration of both immigrants and low-skilled native-born
workers. More than doubling the minimum wage, from $7.25 to $15.00,
risks radically altering the entry-level opportunities on which
these individuals rely.
Recent minimum wage changes have been substantial, with
scheduled increases approaching 70 percent of the initial minimum
wage in several states. Large differences in states’ minimum wage
policies have now been sustained for several years. Recent
experience may thus provide the best opportunity in decades to
learn about the medium-run effects of substantial minimum wage
changes. As data on recent labor market developments pour in, the
next several years will be an exciting time for both minimum wage
research and minimum wage researchers.
1 Editorial Board, “The Right
Minimum Wage: $0.00,” New York Times, January 14,
2 Editorial Board, “The Minimum
Wage: Getting to $15,” New York Times, September 4,
3 M. Desmond, “Dollars on the
Margins,” New York Times Magazine, March 8, 2019.
4 Committee on Education and Labor, “Full Committee Hearing:
‘Gradually Raising the Minimum Wage to $15: Good for Workers, Good
for Businesses, and Good for the Economy,’” U.S. House of
Representatives, February 7, 2019.
5 D. Card and A. B. Krueger,
Myth and Measurement: The New Economics of the Minimum
Wage (Princeton, NJ: Princeton University Press, 1995).
6 R. Whaples, “Do Economists
Agree on Anything? Yes!,” Economists’ Voice, November
7 Initiative on Global Markets
Economic Experts Panel, “Minimum Wage,” Chicago Booth School of
Business, February 26, 2013.
8 Initiative on Global Markets
Economic Experts Panel, “$15 Minimum Wage,” Chicago Booth School of
Business, September 22, 2015.
9 J. Herron, “From California to
New York, States Are Raising Minimum Wages in 2019 for 17 Million
Workers,” USA Today, December 27, 2018.
10 I. Ivanova, “Five Million U.S.
Workers Will Get Raises in 2019,” CBS News, December 31, 2018; and
S. Raphelson, “Minimum Wages Rising in 20 States and Several
Cities,” NPR, December 30, 2018.
11 A. Dube, T. W. Lester, and M.
Reich, “Minimum Wage Effects across State Borders: Estimates Using
Contiguous Counties,” Review of Economics and Statistics
92, no. 4 (2010): 945-64.
12 S. Allegretto, A. Dube, and M.
Reich, “Do Minimum Wages Really Reduce Teen Employment? Accounting
for Heterogeneity and Selectivity in State Panel Data,”
Industrial Relations: A Journal of Economy and Society 50,
no. 2 (2011): 205-40.
13 S. Allegretto et al.,
“Credible Research Designs for Minimum Wage Studies: A Response to
Neumark, Salas, and Wascher,” Industrial & Labor Relations
Review 70, no. 3 (2017): 559-92.
14 D. Cengiz et al., “The Effect
of Minimum Wages on Low-Wage Jobs,”
Quarterly Journal of Economics. Forthcoming.
15 M. Reich, “Likely Effects of a
$15 Federal Minimum Wage by 2024,” Policy Report, Center on Wage
and Employment Dynamics, Institute for Research on Labor and
Employment (Berkeley: University of California, February 7,
16 P. Wolfson and D. Belman,
“Fifteen Years of Research on U.S. Employment and the Minimum
Wage,” Tuck School of Business Working Paper no. 2705499, December
20, 2015 (revised December 14, 2016).
17 Dube, Lester, and Reich
challenged research by David Neumark and William Wascher. In their
2008 book Minimum Wages (Cambridge, MA: MIT Press, 2008),
Neumark and Wascher concluded that, Card and Krueger’s work
notwithstanding, the weight of the evidence continued to support
the traditional view that minimum wages reduce employment. Dube,
Lester, and Reich advanced a case that Neumark and Wascher’s
estimates were prone to econometric biases. Allegretto, Dube, and
Reich (2011) further advanced this case. Debate over econometric
methods for analyzing three decades of U.S. minimum wage changes
subsequently intensified. In two papers from 2014, Neumark, Salas,
and Wascher responded to the critiques of Neumark and Wascher’s
earlier work; see D. Neumark, J. M. Salas, and W. Wascher,
“Revisiting the Minimum Wage — Employment Debate: Throwing
Out the Baby with the Bathwater?,” Industrial & Labor
Relations Review 67, no. 3 (2014): 608-48; D. Neumark, J. M.
Salas, and W. Wascher, “More on Recent Evidence on the Effects of
Minimum Wages in the United States,” IZA Journal of Labor
Policy 3, no. 1 (2014): 24. This work prompted a 2017
rejoinder from Allegretto, Dube, Reich, and Zipperer, which was
published alongside a response from Neumark and Wascher; see S.
Allegretto et al., “Credible Research Designs for Minimum Wage
Studies: A Response to Neumark, Salas, and Wascher,” Industrial
& Labor Relations Review 70, no. 3 (2017): 559-92; D.
Neumark and W. Wascher, “Reply to ‘Credible Research Designs for
Minimum Wage Studies,’” Industrial & Labor Relations
Review 70, no. 3 (March 7, 2017): 593-609. Cengiz, Dube,
Lindner, and Zipperer further advance the claim that there is no
evidence that three decades of U.S. minimum wage increases have at
any point reduced employment; see Cengiz et al., “The Effect of
Minimum Wages on Low-Wage Jobs.” Forthcoming.
18 Neumark and Wascher,
19 D. Neumark, “The Econometrics
and Economics of the Employment Effects of Minimum Wages: Getting
from Known Unknowns to Known Knowns,” National Bureau of Economic
Research Working Paper no. 25043, September 17, 2018.
20 D. Powell, “Synthetic Control
Estimation beyond Case Studies: Does the Minimum Wage Reduce
Employment?,” working paper, RAND Corporation, Labor &
Population, Santa Monica, CA, July 2017; and Y. S. Baskaya and Y.
Rubinstein, “Using Federal Minimum Wages to Identify the Impact of
Minimum Wages on Employment and Earnings across the U.S. States,”
working paper, Department of Economics Workshop, University of
Chicago, 2012, unpublished, PDF file.
21 J. Clemens and M. Wither, “The
Minimum Wage and the Great Recession: Evidence of Effects on the
Employment and Income Trajectories of Low-Skilled Workers,”
Journal of Public Economics 170 (February 2019):
22 B. Zipperer, “Did the Minimum
Wage or the Great Recession Reduce Low-Wage Employment? Comments on
Clemens and Wither (2016),” working paper, Washington Center for
Equitable Growth, December 2016.
23 See J. Clemens, “The Minimum
Wage and the Great Recession: A Response to Zipperer and
Recapitulation of the Evidence,” ESSPRI Working Papers Series no.
20171, June 14, 2017; J. Clemens, “Pitfalls in the Development of
Falsification Tests: An Illustration from the Recent Minimum Wage
Literature,” ESSPRI Working Papers Series no. 20172, June 14, 2017;
and J. Clemens and M. Wither, “Additional Evidence and Replication
Code for Analyzing the Effects of Minimum Wage Increases Enacted
during the Great Recession,” ESSPRI Working Papers Series no.
20173, June 14, 2017.
24 E. Jardim et al., “Minimum
Wage Increases, Wages, and Low-Wage Employment: Evidence from
Seattle,” National Bureau of Economic Research Working Paper no.
23532, June 2017.
25 E. Jardim et al., “Minimum
Wage Increases and Individual Employment Trajectories,” National
Bureau of Economic Research Working Paper no. 25182, October
26 Michael Reich letter to
Seattle Mayor’s Office, Institute for Research on Labor and
Employment, June 26, 2017.
27 B. Zipperer and J. Schmidt,
“The ‘High Road’ Seattle Labor Market and the Effects of the
Minimum Wage Increase,” Economic Policy Institute, June 26,
28 R. Gopalan et al., “State
Minimum Wage Changes and Employment: Evidence from Two Million
Hourly Wage Workers,” Social Science Research Network Electronic
Journal, January 2017.
29 An early paper in this
research is J. Clemens and M. R. Strain, “The Short-Run Employment
Effects of Recent Minimum Wage Changes: Evidence from the American
Community Survey,” Contemporary Economic Policy 36, no. 4,
(October 2018): 711-22. The initial precommitment concept can be
found in J. Clemens and M. R. Strain, “Estimating the Employment
Effects of Recent Minimum Wage Changes: Early Evidence, an
Interpretative Framework, and a Precommitment to Future Analysis,”
National Bureau of Economic Research Working Paper no. 23084,
30 C. T. Kreiner, D. Reck, and P.
E. Skov, “Do Lower Minimum Wages for Young Workers Raise Their
Employment? Evidence from a Danish Discontinuity,” Review of
Economics and Statistics, forthcoming, https://doi.org/10.1162/rest_a_00825.
31 C. Yannelis, “The Minimum Wage
and Employment Dynamics: Evidence from an Age-Based Reform in
Greece,” working paper, Royal Economic Society Annual Conference,
32 P. Harasztosi and A. Lindner,
“Who Pays for the Minimum Wage?,” American Economic
33 J. Kabátek, “Happy Birthday,
You’re Fired: The Effects of Age-Dependent Minimum Wage on Youth
Employment Flows in the Netherlands,” IZA Discussion Paper no.
9528, November 2015.
34 E. Saez, B. Schoefer, and D.
Seim, “Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence
from a Young Workers’ Tax Cut in Sweden,” American Economic
35 M. Caliendo, C. Schröder, and
L. Wittbrodt, “The Causal Effects of the Minimum Wage Introduction
in Germany: An Overview,” IZA Discussion Paper no. 12043, 2018; M.
Caliendo et al., “The Short-Run Employment Effects of the German
Minimum Wage Reform,” Labour Economics 53 (August 2018):
46-62.; and M. Caliendo et al., “The Short-Term Distributional
Effects of the German Minimum Wage Reform,” IZA Discussion Paper
no. 11246, 2017.
36 J. Horton, “Price Floors and
Employer Preferences: Evidence from a Minimum Wage Experiment,”
working paper, Leonard N. Stern School of Business, New York
University, July 17, 2018, unpublished, PDF file.
37 A. Manning, Monopsony in
Motion: Imperfect Competition in Labor Markets (Princeton, NJ:
Princeton University Press, March 3, 2003).
38 Manning, Monopsony,
39 Unemployment insurance data
reveal that the typical unemployment spell lasts roughly 10 weeks.
See Federal Reserve Economic Data (website), “Median Duration of
Unemployment (UEMPMED),” Federal Reserve Bank of St. Louis. Data in
the American Time Use Survey (ATUS) suggest that job-seekers spend
just over two hours actively searching for work on days during
which they search; see C. Adams, J. Meer, and C. Sloan, “The
Minimum Wage and Search Effort,” National Bureau of Economic
Research Working Paper no. 25128, October 2018. Surprisingly, the
unemployed report spending two hours on searching roughly one day
per week. Multiplied by 10 weeks, this suggests that the typical
job search entails roughly 20 hours of active search. A more
generous estimate might assume two hours of search on five days
each week. This suggests 100 hours of search over the course of a
10-week unemployment spell, or 200 hours over a 20-week spell.
Because the data imply far fewer days of search per week, this is a
strong upper bound on the search time consistent with the ATUS.
40 S. Rosen, “The Theory of
Equalizing Differences,” in Handbook of Labor Economics,
eds. O. Ashenfelter, P. R. G. Layard (Amsterdam: Elsevier North
Holland Publishing Co., 1986) 1: 641-92.
41 One recent paper finds, for
example, that real-time flexibility of hours has high value to Uber
drivers. See M. K. Chen et al., “The Value of Flexible Work:
Evidence from Uber Drivers,” National Bureau of Economic Research
Working Paper no. 23296, March 2017; additional research similarly
finds that a subset of workers place quite high valuations on
flexible work arrangements. See A. Mas and A. Pallais, “Valuing
Alternative Work Arrangements,” American Economic Review
107, no. 12 (2017): 3722-59; additional research uses a field
experiment to pin down evidence that, conditional on two jobs
having the same pay, individuals are more likely to apply for the
jobs with the more flexible schedule. See H. He, D. Neumark, and Q.
Weng, “Do Workers Value Flexible Jobs? A Field Experiment on
Compensating Differentials,” National Bureau of Economic Research
Working Paper no. 25423, January 2019.
42 N. Maestas et al., “The Value
of Working Conditions in the United States and Implications for the
Structure of Wages,” National Bureau of Economic Research Working
Paper no. 25204, October 2018.
43 I. Sorkin, “Ranking Firms
Using Revealed Preference,” Quarterly Journal of
Economics 133, no. 3 (2018): 1331-93.
44 For an example of earlier
work, see R. Kaestner and K. Simon, “Do Minimum Wages Affect
Nonwage Job Attributes? Evidence on Fringe Benefits,”
Industrial & Labor Relations Review 58, no. 1 (2004):
52-70; for examples of more recent work, see J. Clemens, L. Kahn,
and J. Meer, “The Minimum Wage, Fringe Benefits, and Worker
Welfare,” National Bureau of Economic Research Working Paper no.
24635, May 2018. Two recent conference presentations suggest that
other researchers are seeing similar negative correlations between
minimum wages and EPHI in recent data from both the American
Community Survey and the Current Population Survey. See A. Gooptu
and K. Simon, “The Effect of Minimum Wage Laws on Employer Health
Insurance: Do Outside Options Matter?,” 39th Annual Fall Research
Conference, Association for Public Policy Analysis &
Management, November 4, 2017 (conference paper); see also C. Eibner
et al., “Do Minimum Wage Changes Affect Employer-Sponsored
Insurance Coverage?,” 7th Conference of the American Society of
Health Economists, June 11, 2018 (conference paper).
45 H. Ku, “Does Minimum Wage
Increase Labor Productivity? Evidence from Piece Rate Workers,”
working paper, Department of Economics and CReAM, University
College London, April 2018, unpublished, PDF file; and D. Coviello,
E. Deserranno, and N. Persico, “Minimum Wage and Individual Worker
Productivity: Evidence from a Large U.S. Retailer,” working paper,
Workforce Science Project of the Searle Center for Law, Regulation,
and Economic Growth, Northwestern University, February 1, 2018,
unpublished, PDF file.
46 D. Aaronson and B. J. Phelan,
“Wage Shocks and the Technological Substitution of Low-Wage Jobs,”
Economic Journal 129, no. 617 (January 2019): 1-34; and G.
Lordan and D. Neumark, “People Versus Machines: The Impact of
Minimum Wages on Automatable Jobs,” Labour Economics 52
(June 2018): 40-53.
47 J. Clemens, L. Khan, and J.
Meer, “Dropouts Need Not Apply: The Minimum Wage and Skill
Upgrading,” (unpublished working paper, September 3, 2018) PDF
48 J. Clemens, D. Hobbs, and M.
Strain, “A Database on the Passage and Enactment of Recent State
Minimum Wage Increases,” IZA Institute of Labor Economics
Discussion Papers no. 11748, August 2018.
49 I. Sorkin, “Are There Long-Run
Effects of the Minimum Wage?,” Review of Economic Dynamics
18, no. 2 (April 2015): 306-33; and D. Aaronson et al., “Industry
Dynamics and the Minimum Wage: A Putty-Clay Approach,”
International Economic Review 59, no. 1 (February 2018):
50 J. Meer and J. West, “Effects
of the Minimum Wage on Employment Dynamics,” Journal of Human
Resources 51, no. 2 (2016): 500-22.