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New NBER Study Shows Negative Effects of Higher Minimum Wage

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New NBER Study Shows Negative Effects of Higher Minimum Wage

October 28, 2014

As Election Day pulls closer, the minimum wage remains a contentious issue. Statewide minimum wage hikes are on the ballot in five states: Alaska, Arkansas, Illinois, Nebraska, and South Dakota. Labor Secretary Tom Perez, responding to New Jersey Republican Governor Chris Christie’s charge that Democrats are too focused on the minimum wage, accused Republicans of having their heads in the sand, saying that America’s minimum wage is lower than most other OECD nations. 

As well as at the ballot box, the minimum wage debate has been playing out in the world of academia. Economics professor David Neumark (University of California at Irvine) has been publishing on the minimum wage since 1992. His latest National Bureau of Economic Research working paper, co-authored with J.M. Ian Salas (Harvard) and William Wascher (Federal Reserve Board), shows that minimum wage increases reduce employment prospects for teens and low-skilled workers—precisely the people it is intended to help.

For years, Neumark has battled claims by other economists, such as University of Massachusetts professor Arindrajit Dube, that minimum wage hikes have no effect on employment. This latest paper offers more evidence that employment prospects for teenagers are diminished most by the minimum wage. 

Even though teenagers are generally not relying on minimum wage income for living expenses, jobs give teenagers their first opportunity for work experience that is crucial for becoming a productive worker later in life. For disadvantaged teenagers, a minimum wage job can develop skills that provide an opportunity to move out of the lower-class.

While state and local minimum wage increases deprive some of jobs, even more young people would be out of work if the federal government increased the minimum wage nationwide. Income levels and cost of living vary widely between states. The hourly median wage varies from a high of $37.59 in Los Alamos County, New Mexico, to a low of $10.81 in Brownsville-Harlingen, Texas. The federal minimum wage is an attempt to impose an oversimplified, cure-all prescription to the complex and diverse causes of poverty.

According to the Bureau of Labor Statistics, half of minimum wage workers are under the age of 25, when it is normal to earn low wages at the beginning of a career. Most minimum wage workers are not full-time—about 22 percent work 40 hours or more. Minimum wage workers represented 2 percent of working Americans. 

The United States needs reforms that create jobs. According to the U.S. Census Bureau, only 3 percent of Americans aged 18 to 64 who worked full-time, year-round in 2013 were living in poverty. Reforms that lift the impoverished out of unemployment will help solve poverty more than raising the minimum wage ever could.  Reforms of America’s immigration, tax, regulatory, and health care systems could raise GDP growth and create jobs, but raising the minimum wage makes employment harder to reach for those who need a job most.

Neumark’s new paper shows once again that flashy sound bites such as “Raise the Wage” make for quick political slogans, but raising the minimum wage will continue to price teens out of jobs.


Jason Russell is a research associate at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.

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