The Democratic leadership in Congress intends to pass a minimum wage increase upon taking power this month. To advance the policy debate on the subject, AEI economist
Alan D. Viard held a conference at the Institute on December 4 to look at how the minimum wage affects employment.

David Neumark of the University of California, Irvine, presented a comprehensive review of minimum wage research from the past fifteen years. Drawing on research that he conducted with William Wascher for the National Bureau of Economic Research, Neumark analyzed earlier research and described the historical development of the minimum wage in Congress. “No consensus,” he said, “now exists about the overall effects on low-wage employment of an increase in the minimum wage.”

Neumark highlighted limitations of the some of the earlier studies of the minimum wage. Too often, he asserted, the research focused primarily on groups--such as teenagers--which include many workers not directly affected by the minimum wage. Thus, estimated results tended to understate the employment effects on sub-minimum wage workers.

Neumark and Wascher had reviewed studies of previous state-level panel analyses that estimated minimum wage effects as well as industry-specific case studies. Overall, they reviewed ninety different studies and highlighted what they found to be the most credible sources of information. They found that nearly two-thirds of the credible studies found job losses from an increased minimum wage.

Although Jared Bernstein of the Economic Policy Institute did not dispute Neumark’s review of the literature, he argued that negative employment effects are not absolutely certain. Bernstein advocated conducting research to discover who is affected by the minimum wage and how the government implements minimum wage reform. “Historically,” he noted, “minimum wage increases are followed by tax cuts.”

Harry Holzer of the Georgetown Public Policy Institute acknowledged that a tradeoff between wages and jobs is inherent in any kind of minimum wage reform, but he highlighted the benefits of increasing the minimum wage, which he said far outweigh the drawbacks of doing so.

For a video and summary of this event, please visit www.aei.org/event1430/.