Minimum wage meta-analysis: evidence over theory


A recent Pew poll finds that, by a significant margin, 71% to 26% of Americans are in favor of raising the federal minimum wage from the current $7.25 to $9.00 an hour. This is one of several proposals laid out by President Obama in his State of the Union address.

The same poll reveals that 50% of Republicans were also in favor—but don’t count top GOP lawmakers among them. Immediately following the president’s address, Sen. Marco Rubio, R-Fla., and Rep. Paul Ryan, R-Wis., got mic’ed up for TV, and explained why they weren’t fans of the raising the minimum wage.

Both men prefaced by saying they’d love all Americans to make more money, but raising wage limits was not the answer and would not work. Their argument: it would be “inflationary” and “counter-productive”, and would cost the jobs of the very people it’s supposed to help.

We’ve been covering this issue for a little while now, and several of our viewers have reached out seeking out more on details on the argument to increase the minimum wage.

Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and msnbc contributor, was kind enough to send us some notes, with empirical evidence, why one of the GOP’s most common theories against raising the minimum wage is unfounded.

Here you go:

The key work there is “theory.”  And theories must be tested, especially in economics.  The theory is certainly plausible, but the economy is a complicated system with lots of moving parts, and you simply can’t assume “if x then y” without rigorous testing.

Thankfully, you’d be hard pressed to find an economic theory that’s undergone more scrutiny than this one.  And even better, because we’ve “run the experiment” many times—there have been many federal increases and 19 states have their own minimum wage rates higher than the federal—we have the benefit of high quality research comparing places with higher minimums to places without, holding other stuff constant.

So, what do the studies show?  For years, my summary of this large literature was “the results hover around zero” by which I meant that estimates of the “disemployment effects”—the extent to which affected workers lost their jobs—were generally small, statistically insignificant, and sometimes even had the “wrong sign” (i.e., positive, suggesting the wage increase led to higher employment—which I don’t believe either, for the record).

Well, thanks to some very nice work recently reviewed by economist John Schmitt, I now have a picture of that point to share with you. The figure below is the result of something called a meta-analysis—here’s Schmitt’s description:

Meta-studies are “studies of studies” that use a set of well-defined statistical techniques to pool the results of a large number of separate analyses. Meta-study techniques effectively increase the amount of data available for analysis and can provide a much sharper picture of statistical relationships than is possible in any individual study. Meta-studies are widely used in medicine, where the results of many small clinical trials can be combined to produce much more accurate estimates of the effectiveness of different kinds of treatments.

Hristos Doucouliagos and T. D. Stanley (2009) conducted a meta-study of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment in the United States. When they graphed every employment estimate contained in these studies (over 1,000 in total), weighing each estimate by its statistical precision, they found that the most precise estimates were heavily clustered at or near zero employment effects.

So, there you have it: A clear picture of the hunt for job-loss effects clumping around zero.  That doesn’t mean no one ever loses a job or faces hours’ cutbacks when the minimum wage goes up.  But it does mean that the policy has its intended effect of raising the pay of its target population without the unintended consequences relentlessly touted by opponents.

I understand that we live in times where evidence too rarely wins the day.  But the stakes for low-wage workers are too high and the evidence too strong to allow the opposition to mislead.  Thanks to the President’s proposal, the fight for another minimum wage increase has been joined. Consider this graph a weapon against those who insist on theory over evidence.

Watch Martin’s conversation with Dr. James Peterson and Jared Bernstein on why austerity ideas like this should raise red flags for voters.