The minimum wage wars are heating up


Martin Sandbu in the FT's Alphaville:

The effects of raising minimum wages is one of the most contested battlefields in economic policy analysis. All sides can claim to care about the poor: those against higher minimum wages warn that they hurt the poor by putting them out of work while those for them assert that the employment effects are negligible. And so anyone who can marshal facts for their side can almost automatically accuse the other side of callousness.

This week, minimum wage sceptics have embraced new evidence from Seattle, which is pushing through one of the most aggressive increases anywhere. The city’s wage floor increased from the state minimum of $9.47 an hour to $11/hour in 2015, to $13/hour in 2016, and headed towards $15/hour by the end of the process. There are impartial summaries of the research from FiveThirtyEight and the Wall Street Journal, which report the study’s conclusion that, on average, the lost jobs and hours due to the minimum wage increase meant low-wage workers earned $125 a month less than they would have without the minimum wage increase.

Megan McArdle expresses well the vindication felt by reasonable sceptics of wage floors. “If the minimum wage increases by a penny an hour, probably even most rock-ribbed conservatives would not predict mass firings. On the other hand, if the wage was arbitrarily set to $100 an hour, even ardent labor activists would presumably expect widespread unemployment to follow . . . The size of the increase, and the level of the resulting wage, obviously matter at some margin. Seattle may have discovered that margin.”

The problem is that the study’s methodology does not support this conclusion.

More here.