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Simply Poor Economic Journalism

Here’s a letter to the Washington Post:

Flaws galore infect Steven Pearlstein’s case for raising the minimum wage (“Big strides could come from a small bump in pay,” Jan. 5) – that is, his case for government intervention to strip low-skilled workers of the most valuable of the few bargaining chips they have when competing for employment, namely, their ability to offer to work for hourly pay below that of other, more qualified workers who are paid the government-stipulated minimum.  Mr. Pearlstein calls government’s practice of robbing workers of this bargaining chip “justice”; I call it injustice, because it is theft of an option that many of the most disadvantaged workers must exercise if they are to find jobs.

Of course, Mr. Pearlstein wants your readers to think that raising the minimum wage has little effect on such workers’ ability to find jobs.  When he asks rhetorically “why do countless studies show that the impact on low-wage employment ranges from zero to small?” he gives the misleading impression that economists have reached a consensus conclusion that raising the minimum wage has little or no effect on the employment prospects of low-skilled workers.  But contrary to Mr. Pearlstein’s suggestion, no such consensus exists.  Far from it.  There are also “countless studies” that show results quite the opposite of the studies to which Mr. Pearlstein alludes.

Just last month, for example, University of California at San Diego economists Jeffrey Clemens and Michael Wither released a detailed empirical study that led them to conclude that “minimum wage increases had significant, negative effects on the employment and income growth of targeted workers” and that “minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings.”*  Many other well-regarded studies reach similar conclusions.

Mr. Pearlstein does your readers – and low-skilled workers – an injustice to suggest otherwise.


Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers” (December 2014).
(quotations come from page 1 and page 36)

And don’t forget: empirical studies today of the effects of changes today in the minimum wage are biased against finding negative employment results because many of the negative results of minimum-wage legislation have long ago been ‘internalized’ into the economy due to the fact that the minimum wage has been in existence in the U.S. for 80 years.

It would be like empirically studying today the effects of a recent rise in the minimum-allowed price of strawberries if strawberries had long ago been made unnecessarily pricey by minimum-strawberry-price legislation.  Consumers would long ago have switched their diets away from strawberries; chefs would long ago have begun concocting fewer desserts and recipes with strawberries and more with other fruits and berries.  Other ingredients would have become staple substitutes for strawberries in consumers’ diets and in chefs’ dishes and recipes.  Farmers, in turn, would have – despite the formal, legislated higher list price for strawberries – either totally abandoned or significantly abandoned strawberry production.  Many producers who would otherwise, in the absence of the minimum-strawberry-price legislation, grown and sold strawberries, wind up more and more as the years pass producing other berries that are not burdened with price controls.  So when an empirical study is done of the effect on strawberry sales of, say, a 10 percent or even of a 100 percent hike today in the minimum price of strawberries, the detected empirical effects will underrepresent the full depressing impact that a legislated minimum price of strawberries has on the market for strawberries.