Discussion of Empire Center/American Action Forum report Michael Reich, March 2016

Many studies of minimum wages use variation in state and federal minimum wages over time to
identify the causal effects on employment. However, as shown by Dube, Lester and Reich in a
number of academic papers (Review of Economics and Statistics 2010, and Journal of Labor
Economics forthcoming, 2016), studies that do not include controls for pre-existing low-wage
employment trends conditions fail a basic smell test: Low-wage employment falls in these
studies as much as two years before a minimum wage is implemented. The reason: the states that
implement higher minimum wages differ in other respects from those that do not. Additional
findings reported in Allegretto, Dube, Reich and Zipperer (2015, forthcoming in Industrial and
Labor Relations Review) reconfirm the importance of including local controls in these types of
studies. This issue is at the heart of the problem in all of the studies cited in the Empire
Center/AAF report.
The Empire Center report relies on three documents, the 2014 CBO report, Meer and West
(2014) and Clemens and Withers (2014).
1. The CBO estimate of the disemployment effects of a $10.10 minimum wage is not based on
CBO's own research, but on discredited studies by Neumark and Wascher. These studies fail the
smell test I mention above. My article in Politico, cited below, provides further details. I would
add that the White House and Federal Reserve Chair Janet Yellen also argued at the time that
CBO's disemployment effects were too high. See:
http://www.politico.com/magazine/story/2014/02/minimum-wage-boost-wont-kill-jobs-103769
2. Meer and West find effects that are well beyond previous disemployment estimates. They use
an estimator that examines lagged effects (three years after a minimum wage implementation.)
But their estimator is flawed. Meer and West find evidence of minimum wage disemployment
effects in relatively high-wage industries: manufacturing, management and administrative
support services. Their disemployment estimates are much larger in these industries than in lowwage industries, such as accommodation and food services. And they find an implausibly large
positive employment effect for education. Their revised version (Meer and West August 2015),
Appendix table OA2.1, shows that their newer results retain the same flaw. These discrepancies
mean that the method Meer and West use is not credible.
3. Using a different statistical method and data that come only from the Great Recession,
Clemens and Withers' estimates are even larger than Meer and West's. However, their work also
fails to control for local low-wage employment trends. Using data supplied by Clemens and
Wither, my colleagues Arindrajit Dube and Ben Zipperer find that their disemployment estimate
is much reduced after local controls are introduced. The remainder is due to the sharp fall in
construction during the Great Recession, not to the sectors that hire most workers affected by
minimum wage increases.

To summarize, the Empire/AAF report relies entirely on studies that do not meet basic smell
tests. Moreover, as I emphasize in the IRLE New York State report, studies that use data from
recent more moderate increases in minimum wages are not reliable predictors of the effects of a
$15 minimum wage.