Jeffrey Clemens on the disemployment effects of the minimum wage

The debate among economists over whether minimum wages reduce employment has been ongoing ever since David Card and the late Alan Krueger published this paper in 1994, if not longer. My reading of the evidence, and especially the recent evidence out of Seattle and Denmark (see my posts here and here and here for more), is that higher minimum wages do reduce employment.

Jeffrey Clemens has a new article on the Cato Institute website that I think does a great job of summarising the literature (including those articles I blogged about), and is well worth reading. Here is part of the introduction:

This policy analysis discusses four ways in which the case for large minimum wage increases is either mistaken or overstated.

First, the new conventional wisdom misreads the totality of recent evidence for the negative effects of minimum wages. Several strands of research arrive regularly at the conclusion that high minimum wages reduce opportunities for disadvantaged individuals.

Second, the theoretical basis for minimum wage advocates’ claims is far more limited than they seem to realize. Advocates offer rationales for why current wage rates might be suppressed relative to their competitive market values. These arguments are reasonable to a point, but they are a weak basis for making claims about the effects of large minimum wage increases.

Third, economists’ empirical methods have blind spots. Notably, firms’ responses to minimum wage changes can occur in nuanced ways. I discuss why economists’ methods will predictably fail to capture firms’ responses in their totality.

Finally, the details of employees’ schedules, perks, fringe benefits, and the organization of the workplace are central to firms’ management of both their costs and productivity. Yet data on many aspects of workers’ relationships with their employers are incomplete, if not entirely lacking. Consequently, empirical evidence will tend to understate the minimum wage’s negative effects and overstate its benefits.

Do read the whole article, if you are interested in what the (especially latest) research on the minimum wage has to say.

[HT: Marginal Revolution]