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Neumark Hits the Mark on the Minimum Wage

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David Neumark – one of today’s most respected and skilled econometricians who studies the employment effects of minimum-wage legislation – has a superb essay in tomorrow’s Wall Street Journal on the minimum wage [2].  (gated)  Among the reasons for the excellence of Neumark’s work is that he is, in addition to being a master econometrician, also an excellent economist.  These two disciplines (econometrics and economics), while complementary to each other, are emphatically not the same.  Much of what’s wrong with modern-day economics is that people who master econometrics (in part because their degrees are said to be in “economics”) mistake their knowledge of econometrics for knowledge of economics – despite the fact that many of these econometricians know precious little economics.  And no amount of mastery of econometrics can compensate for ignorance of economics.

Here’s a slice from Neumark’s essay:

Economists point to a crucial question: Will a higher minimum wage reduce the number of jobs for the country’s least skilled workers? President Obama says “there is no solid evidence that a higher minimum wage costs jobs.” On the contrary, a full and fair reading of the evidence shows the opposite. Raising the minimum wage will cost jobs, particularly those held by the least-skilled.

Economists have written scores of papers on the topic dating back 100 years, and the vast majority of these studies point to job losses for the least-skilled. They are based on fundamental economic reasoning—that when you raise the price of something, in this case labor, less of it will be demanded, or in this case hired.

Among the many studies supporting this conclusion is one [3] completed earlier this year by Texas A&M’s Jonathan Meer and MIT’s Jeremy West, which reaffirmed that “the minimum wage reduces job growth over a period of several years” and that “industries that tend to have a higher concentration of low-wage jobs show more deleterious effects on job growth from higher minimum wages.”

The broader research confirms this. An extensive survey of decades of minimum-wage research, published by William Wascher of the Federal Reserve Board and me in a 2008 book titled “Minimum Wages,” generally found a 1% or 2% reduction for teenage or very low-skill employment for each 10% minimum-wage increase.

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