Coming in a bit late, I have the opportunity to survey a range of blogospheric discussion of the topic of minimum wages, which largely supports the view (not surprising to anyone but an economist) that minimum wages are good for low-income workers. The traditional view among economists was that minimum wages reduced employment and thereby harmed workers, but this view has been overturned, or heavily qualified, by empirical evidence, beginning with the work of Card and Krueger.
The debate kicked off with a piece by Stephen Landsburg in Slate, noting that recent US econometric studies had failed to find economically and statistically significant negative effects on employment resulting from higher minimum wages. This was surprising, in view of a range of earlier studies which found right-signed effects, but were statistically weak because of small samples. Landsburg argues that this might be an example of publication bias, in which studies with no statistically significant results tend to get discarded. He concludes
Now that we’ve re-evaluated the evidence with all this in mind, here’s what most labor economists believe: The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway. It is almost impossible to maintain the old argument that minimum wages are bad for minimum-wage workers. In fact, the minimum wage is very good for unskilled workers. It transfers income to them
Landsburg then goes on to argue against the minimum wage on the curious ground that it’s a less transparent alternative to policies such as an Earned Income Tax Credit. Brad de Long responds, endorsing the EITC, but arguing that minimum wages are also an effective policy instrument for transferring income to the poor.
There are quite a few interesting responses. Steve Verdon develops Landsburg’s argument, pointing out that a minimum wage increase which raises the general cost of goods and services is like a consumption tax and has an associated deadweight loss. That’s true, but it’s also true of whatever tax may be used to finance the EITC. Robert Waldmann suggests changing the structure of payroll tax, but as he himself points out, his argument disregards the point that the budget is already in deficit. Tyler Cowen observes that increases in wages may be offset be reductions in working conditions. Interestingly, no-one seems to have defended the traditional view on empirical grounds.
An interesting and important question is whether these results can be transferred to other countries like Australia, where the minimum wage is higher relative to average weekly earnings. In the survey of the literature we did for the National Wage Case, Steve Dowrick and I concluded that, although there might be some reduction in employment and some leakage to low-wage workers in high-income households, the evidence showed that minimum wages help low-income workers . Our study is here (PDF file)
Overall, my view is close to that of Brad de Long. Minimum wages are a useful policy instrument, but by no means the only or most important one, to improve the position of low-income workers.
Update Jacob Levy asks, reasonably enough
If, as Landsburg claims, the published studies are “all in agreement” about the direction of the effect, then the underlying distribution of studies can’t be as he describes it, can it? Publication bias in favor of significant findings, superimposed on an actually-neutral relationship ought to generate equal numbers of ostensibly-significant findings in each direction.
Actually, the Card and Krueger study found weak positive impacts of minimum wages on employment using a data set where most of the obvious sources of bias had been removed. There may have been earlier studies with similar results, but they would almost certainly have been discarded, on reasonable grounds of weak statistical significance or omitted variable bias. By contrast, studies with similar weaknesses, but with the expected sign would have been published.
John Quiggin 