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Why Does the Minimum Wage Have No Discernible Effect on Employment?

Why Does the Minimum Wage Have No Discernible Effect on Employment?

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The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.
The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.

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Published by: Center for Economic and Policy Research on Feb 13, 2013
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08/27/2013

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Center for Economic and Policy Research
1611 Connecticut Avenue, NW, Suite 400Washington, D.C. 20009202-293-5380www.cepr.net
 
Why Does the Minimum Wage HaveNo Discernible Effect on Employment?
 John Schmitt
February 2013
 
CEPR Why Does the Minimum Wage Have No Discernible Effect on Employment?
i
 About the Authors
 John Schmitt is a Senior Economist at the Center for Economic and Policy Research in Washington,D.C.
 Acknowledgements
 Acknowledgments: CEPR thanks the Ford Foundation for financial support. The author thanksEileen Appelbaum, Dean Baker, Heather Boushey, Janelle Jones, and Michael Reich for many helpful comments; and Chris Doucouliagos and Tom Stanley for kindly supplying the data forFigure 1.
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CEPR Why Does the Minimum Wage Have No Discernible Effect on Employment?
1
Executive Summary
 The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research
 – 
roughly since 2000
 – 
to determine thebest current estimates of the impact of increases in the minimum wage on the employmentprospects of low-wage workers. The weight of that evidence points to little or no employmentresponse to modest increases in the minimum wage. The report reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. The strongestevidence suggests that the most important channels of adjustment are: reductions in labor turnover;improvements in organizational efficiency; reductions in wages of higher earners ("wagecompression"); and small price increases.Given the relatively small cost to employers of modest increases in the minimum wage, theseadjustment mechanisms appear to be more than sufficient to avoid employment losses, even foremployers with a large share of low-wage workers.

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