The Corner

Obama’s Pinocchio Test on His Minimum-Wage Statement

Washington Post’s Glenn Kessler fact-checked the following statement from the president about the minimum wage:

We all know the arguments that have been used against a higher minimum wage. Some say it actually hurts low-wage workers – businesses will be less likely to hire them. But there’s no solid evidence that a higher minimum wage costs jobs.

Kessler proceeds to show that there is in fact some very serious research finding that increasing the minimum wage may have an impact on employment. He cites the following studies:

In 2006, economists David Neumark and William Wascher published a survey of more than 100 studies, and came to an opposite conclusion, directly contradicting the results of the so-called New Minimum Wage Research. They found that the majority of the studies showed that “raising the minimum wage leads to economic distortions and often has unintended adverse consequences for the employment opportunities of low-skilled workers.”

The Fact Checker obviously is not going to take a stand on this debate, only to note that it exists. Each side can find fault with the methods of the other. Neumark and Wascher were faulted for making judgments about different studies, while the meta-analysis was criticized for treating each study as equal in quality.

Economist Arindrajit Dube and others came up with a new approach in 2010, looking at the impact in counties adjacent at different states, that bolstered the findings of the new minimum wage forces. But economists Jonathan Meer and Jeremy West this year fired back with a study that found that minimum wage hikes reduce net job growth because of the effect on expanding companies. And a 2011 study from economists at the London School of Economics and the Central Bank of Turkey found higher minimum wages increased unemployment.

In other words, it is wrong to argue that the debate is settled — and certainly, unequivocally wrong there is no evidence that it may reduce the demand for labor. The article ends with the following quote by an economist and supporter of indexing the minimum wage to inflation:

The statement is absolutely incorrect. There is substantial evidence that jobs are lost. The relevant question is how many: And that depends on how high you push the minimum wage. An increase from the current low level (low compared to other rich countries) will cost a few jobs, but not very many. An increase to $15, a la living wage proponents, would either cause very large job losses or lead to substantial price inflation.

 

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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