hey gordon,
1992 or so i think yah? i can remember folks were all a-buzz about it. the sociologists were gloating and lording it over the econodrones! :)
David Card, "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Industrial and Labor Relations Review, October 1992 Card,"Do Minimum Wages Reduce Employment? A Case Study of California," Industrial and Labor Relations Review, October 1992, pp. 22-37.
David Neumark and William Wachser, "Employment Effects of Minimum and Subminimum Wage Panel Data on State Minimum Wage Laws," Industrial and Labor Relations Review, October 1992, pp. 55-81.
http://www.public-policy.org/~ncpa/studies/s190/s190d.html What Economic Studies Show About the Employment Effects of the Minimum Wage
What Economic Studies Show About the Employment Effects of the Minimum Wage
---------- Since its beginnings in late 1938, the minimum wage has been increased 17-fold in nominal terms. <gif/s190a.htm>[See Figure I.] President Clinton's proposal would bring the wage to about 20 times its initial level.
Early History of the Minimum Wage Law.
During the depressed economic conditions of the late 1930s, the Fair Labor Standards Act was passed. The new law created a minimum wage of 25 cents an hour, roughly 40 percent of the actual average wage. Even though the minimum was very low and applied to a limited number of workers, in some areas the negative employment effects were substantial from the outset. For example:
* Needlework exports from Puerto Rico, where the law also applied, declined about 70 percent after the enactment of the Fair Labor Standards Act.<s190note.htm#2>2
* Nationwide, a government estimate concluded that between 30,000 and 50,000 jobs were lost as a direct result of enforcing the minimum wage.<s190note.htm#3>3
* Since the labor force has more than doubled over the years, that would be the equivalent of perhaps 100,000 jobs lost today. Interestingly, the provisions of the Fair Labor Standards Act recognized the possibility that minimum wages could have employment effects. The basic legislation invoked the phrase -without curtailing employment- several times in describing options available to those administering the law. For example, a 25-cent-an-hour minimum was to begin October 24, 1938. This was to be in effect for one year, followed by a 30-cent minimum for the next six years and a 40-cent rate in 1945.4 The minimum could rise more rapidly towards the 40-cent level if administrators felt that this was possible without increasing unemployment.<s190note.htm#5>5
After 1945, the minimum wage was not increased further until January 25, 1950. At that point, it rose to 75 cents an hour. Prior to this increase, the 40-cent minimum represented about 30 percent of the average hourly wage. After the increase, it was over half the average hourly wage.
Economists Reach a Consensus. In a classic article published in 1946, Nobel Laureate George Stigler argued that minimum wage regulations reduced employment. But empirical evidence was still sparse.6 In subsequent years, though, as the federal government repeatedly increased the minimum wage, the opportunities to explore the empirical relationship between minimum wage changes and employment levels multiplied. In the third of a century following Stigler's article, a professional consensus developed around his basic thesis<s190note.htm#7>.7 This consensus was firmly established before 1980.8 In 1982, a survey of the economics literature concluded that minimum wage increases have significant negative effects on employment.<s190note.htm#9>9
At about the same time, both a Minimum Wage Study Commission established by Congress and the conservative American Enterprise Institute conducted additional investigations of the issue. Despite these groups' distinctly different policy perspectives, their findings were so similar that ...if one did not know which study had been funded by which group, one could not guess from the results. ... The vast bulk of the research studies funded by the two groups show modest/moderate impacts consistent with the professional consensus.<s190note.htm#10>10
Recent Heresies.
There matters stood until recently, partly one suspects because there was no strong or effective political pressure for further increases in the minimum wage through the remainder of the 1980s. After generally accepting a single interpretation of the minimum wage-employment linkage, the country experienced a prolonged period without federal minimum wage increases. After 1981, the statutory minimum was not changed until April of 1990. The last increase took effect in April 1991.
By then, the orthodox view of the employment impact of minimum wages was being challenged. In 1992, Princeton economist David Card disputed this view<s190note.htm#11>.11 Lawrence Katz and Alan Krueger, the former and present chief economists of the U.S. Labor Department, sided with Card.<s190note.htm#12>12 Since then, others have joined and extended the debate.<s190note.htm#13>13 The popular press has cited these challenges to orthodoxy as a justification for increased minimum wages.<s190note.htm#14>14
Card, Krueger and Katz rely largely on evidence from changing state minimum wage laws to reach their conclusions that the unemployment effects of minimum wages are very small. However, Ronald Ehrenberg of Cornell has pointed out that these studies ignore the fact that raising the minimum wage forces some firms out of business.<s190note.htm#15>15 Finis Welch of Texas A&M University believes the authors have ignored the impact of other factors that might have increased employment had the minimum wage not been increased.<s190note.htm#16>16 Those who challenged the conventional wisdom have fundamentally violated the basic ceteris paribus (hold other factors constant) assumption critical to economic analysis.<s190note.htm#17>17
Further, when Card and Krueger studied low-wage jobs in the New Jersey and Pennsylvania fast-food industry, they maintained that the number of such jobs actually went up in New Jersey when that state raised its minimum wage, while the number of jobs decreased in neighboring Pennsylvania, where the minimum wage was not increased. However, Linda Chavez, a former staff director of the U.S. Commission on Civil Rights, says that teenage employment overall fell 28 percent in New Jersey while it was falling only 9 percent in Pennsylvania.<s190note.htm#18>18
The arguments advanced by Card et al. seem to have been answered adequately by David Neumark and William Wachser.19 Also, in a recent study of the restaurant industry, using a different methodology than that of most minimum wage studies, we obtained results that are strongly consistent with the earlier findings.<s190note.htm#20>20 Moreover, even the authors of other new studies do not appear to advocate minimum wage hikes. In fact, Krueger said, "I want to emphasize that my comments should not be interpreted as support for the position that increasing the minimum wage is sound public policy."<s190note.htm#21>21
links to footnotes:
http://www.public-policy.org/~ncpa/studies/s190/s190note.html#11
http://www.epinet.org/webfeatures/viewpoints/minwagetestimony.html
The Rhetorical Evolution of the Minimum Wage Oren M. Levin-Waldman Jerome Levy Economics Institute http://www.levy.org/docs/wrkpap/papers/280.html
What Economic Studies Show About the Employment Effects of the Minimum Wage http://cep.lse.ac.uk/papers/discussion/dp0183.html