Saturday, June 13, 2009

The Unintended Consequences of Minimum Wage Laws

David Neumark summarizes the research regarding minimum wage laws. Some of the highlights:
Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduceemployment of young, low-skilled people. . . .

There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I've done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty. . . .

[T]he job-destroying effects of minimum wages fall particularly hard on low-skilled adults in poor families.

There is also evidence that the short-term consequences of minimum wages have long-term effects. The principal sources of an individual's higher earnings are more schooling and the accumulation of experience and skills in the labor market. Unfortunately, increased minimum wages induce some teenagers to drop out of high school and take a job. Moreover, these dropouts take jobs away from the even lower-skilled teenagers who had dropped out earlier. With fewer opportunities to acquire labor-market experience and skills, these teenagers face lower wages as adults.
Unfortunately, the axiom that liberals are more persuaded by emotion than evidence holds a lot of truth. They continue to push for feel-good solutions on issues ranging from welfare, to bilingual education, to minimum wage laws in the face of evidence showing that these are bad policies. My experience is not that they are unaware of the evidence, but that the evidence simply doesn't matter.

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