Minimum-Wage Hikes: Some Data

by Don Boudreaux on January 21, 2014

in Data, Seen and Unseen, Work

Over at Idiosyncratic Whisk (HT Tyler Cowen), Kevin Erdmann asks about minimum-wage legislation:

Is there any other issue where the data conforms so strongly to basic economic intuition, and yet is widely written off as a coincidence?

The basic economic intuition that Kevin refers to, of course, is the recognition of the reality that, ceteris paribus, as E‘s cost of doing H rises, E will do less H.  Ceteris, of course, is seldom paribus in any real-world economy, so it’s almost always possible to find in reality quantifiable instances in which E‘s cost of doing H appears to rise followed by E not doing less H.  The amount of H that E would have done if the (often unobservable, and even frequently unknown) ceteris had in fact remained paribus never becomes a reality; that amount is inherently unobservable and, hence, unmeasurable and unquantifiable.

Estimates based on past experience and trends are possible, and quite often useful, but these estimates are just that: estimates (or extrapolations made from estimates).  They are not reality.  Still, such estimates are the best that we can do given our inability to replay history as a series of controlled experiments.

So below is a graph with some data and estimates compiled by Kevin.  These data and these estimates combine with the compelling nature of – and with the central role in economic science of – the law of demand to make an empirically persuasive case that, as employers’ costs of employing low-skilled workers rises, fewer such workers will be hired than otherwise.

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Obviously, people who, for whatever reason – be that reason political, ideological, rent-seeking, or scientific – continue to insist that minimum-wage legislation in fact does not harm the very workers it is ostensibly meant to help (or that such legislation harms too few such workers to matter) will dismiss as irrelevant or unpersuasive these data and these estimated extrapolations.  In truth – because ceteris was of course not paribus during these decades – minimum-wage legislation can be defended by speculating about all the possible ceteris that, having not been paribus, cause these data to look as they do.  ”Were this, that, and the other thing unchanged, or taken into account, the data would show that higher minimum wages do not lead to fewer employment options for low-skilled workers” – so would say the minimum-wage champion.

But no matter how you come down on this question, be it known that, in fact, one alleged fact – namely, that the data unambiguously, or persuasively enough, show minimum-wage legislation not to reduce the employment prospects of low-skilled worker – is hopelessly at odds with the facts.  Anyone who insists otherwise – anyone who insists that the science is settled that minimum-wage legislation has no measurable negative effect on the employment prospects of low-skilled workers – is not a denizen of any reality-based community.

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