Jared Bernstein Gives Us The Best Graph on the Employment Effects of Minimum Wage Increases
They say sample size matters. A handful of sample points in a study doesn’t tell you much, because they could just be showing random variation. This is also true not when you’re looking at many studies. You need to look at lots of research that uses different methodologies and data sets to get a confident feel for the facts on the ground.
Jared Bernstein points us to exactly such an effort, looking at 64 studies on the employment effects of minimum-wage increases, with a wonderfully informative display:
Note: “se” refers to standard error; 1/se is a measure of statistical significance. The dots up high are generally more believable.
“Employment elasticity” is a measure of the impact of minimum-wage increases. A measure of -.1 (left of the zero line) suggests that 10% MW increase reduces employment by 1%.
All the high-statistical-significance studies put elasticity at zero: no employment effect.
There’s some clustering to the left of the line versus the right down at the bottom, suggesting a small negative employment effect, but none of those studies has high statistical significance.
And this doesn’t consider “file-drawer/publication bias”: studies that find no effect don’t get published, because researchers don’t submit them or journals don’t accept them for publication. The CBO explains this in its new report on minimum-wage effects (PDF). Emphasis mine.
…an unexpectedly large number of studies report a negative effect on employment with a degree of precision just above conventional thresholds for publication. That would suggest that journals’ failure to publish studies finding weak effects of minimum-wage changes on employment may have led to a published literature skewed toward stronger effects.
And that doesn’t consider (pas possible!) negative-effect researchers finding ways to get to that publishable statistical-significance level. (It’s curious that those finding a positive effect don’t display this anomaly…)
So at least, you can mentally add a whole lot more unpublished dots to that tall vertical line. At most, you can shift a bunch of those published dots on the left farther to the right, and down.
Cross-posted at Asymptosis.
A revealing comment by the authors of the study :
“…Two scenarios are consistent with this empirical research record. First, minimum wages may simply have no effect on employment. If this interpretation were true, it implies that the conventional neoclassical labour model is not an adequate characterization of the US labour markets (especially the market for teenagers). It also implies that other labour market theories, such as those involving oligopolistic or monopsonistic competition, or efficiency wages, or heterodox models, are more appropriate.
Secondly, minimum-wage effects might exist but they may be too difficult to detect and/or are very small……”
https://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2008_14eco.pdf
This explains why studies that show a negative effect on employment of MW increases get published , while those that show a positive effect don’t. The positive studies would tend to undermine the bogus neoclassical economic paradigm that has been crafted so diligently over past decades. We might even be forced to contemplate “heterodox” theories. The horror !
Frankly , I’m beginning to think the majority of economic research is worthless. Ideological bias has so corrupted the field that the literature is almost all chaff , with very little wheat.
How about what we could call the wage “discount effect”: where weak bargaining power leaves wages below — in the American labor market possibly far below — what consumers would be willing to pay: meaning that consumers are getting a — possibly very serious — bargain.
On the other end of the wage scale we might find examples of what we could call the wage “premium effect”: where consumers are pressured by market conditions to pay more than the seller would accept if there were sufficient competition or whatever: meaning consumers are getting a — possibly very serious — skinning.
If a deeply discounted minimum wage is raised, in Obama’s case …
… to within a little less than a dollar below LBJ’s 1968 minimum wage …
… almost double the per capita income since (!) …
…over three years, yet (!!!) …
… I think consumers are more likely to drop some spending on some premium wage products (where they are being skinned) in order to keep on purchasing the deeply discounted — in the American labor market — wage products (where they are still getting a WAY TO BIG a bargain — and where if today’s minimum wage were, say, doubled, where they would end up paying as much as they were probably willing to pay all along).
Denis Drew: AGREED! If I may add, those bargain basement prices CAN be maintain should these tight-fisted CEO’s be persuaded to take a cut in pay.
Marko: I’m not a Marxist, BUT Marx did indeed state that Capitalist conspire to keep the workers down through lies and false propaganda.