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U.S. News & World Report: “Obama’s Misleading Minimum Wage Statistics”

I just realized that I’ve never pasted, here at Cafe Hayek, the full text of my and Liya Palagashvili’s July 28th, 2014, piece in U.S. News & World Report. Our piece – titled “Obama’s Misleading Minimum Wage Statistics” – is on a very misleading bit of labor-market information used by the Obama administration to make a case for raising the minimum wage. You can read my and Liya’s piece in full beneath the fold.

Obama’s Misleading Minimum Wage Statistics
Don’t buy the argument that a higher minimum wage enhances job creation.

Donald J. Boudreaux and Liya Palagashvili

Earlier this month, President Obama seized upon fresh data from the Labor Department to argue for a higher minimum wage. According to the president and a subsequent Associated Press report, the 13 states that raised their minimum wages in January of this year are now enjoying, on average, faster job growth than the other 37 states.

The conclusion that Obama (and each of the many media outlets that breathlessly repeated this finding) wants us to draw is that a higher minimum wage not only does not price some workers out of jobs, it positively enhances workers’ job prospects. As the president theorized, “When … you raise the minimum wage, you give a bigger chance to folks who are climbing the ladder, working hard.” Not so fast.

Basic economics teaches that forcing up the price of something makes people less willing to buy that something. This reasoning, for example, is behind the administration’s recent hike in tariffs on Korean steel. The president correctly understands that forcing up the price of Korean steel will cause Americans to buy less of it. Contrary to Obama’s suggestion, the same logic holds for labor. Forcing up labor’s price will cause employers to hire less of it (by, for example, supermarkets using self-checkout computers instead of cashiers).

Yet how do we explain the data that Obama cites as evidence that higher minimum wages mean more, not fewer, jobs? Using statistics to sustain weak arguments is notoriously easy — a truth captured by Mark Twain’s observation that “There are three kinds of lies: lies, damned lies, and statistics.”

First, Obama’s employment statistics are not adjusted for changes in any of the many other factors that inevitably influence businesses’ hiring practices — factors such as states’ tax rates and labor regulations, as well as demographic and industrial trends that have nothing to do with minimum wage legislation.

Second, these statistics are disturbingly sensitive to small changes in their starting and ending dates. It’s true that employment in the 13 states that raised their minimum wages in January was, on average, 0.85 percent higher in June 2014 than it was in December 2013. It’s also true that, over this same time span, employment in the 37 states that did not raise their minimum wages rose by only 0.61 percent. (These are the very figures that minimum wage proponents are now trumpeting.) But if we shorten this time span by just one month — looking now at January 2014 to June 2014 — we get a very different picture.
In June, the number of jobs in the 13 minimum-wage states was, on average, only 0.59 percent higher than it was in January, while, for the same time period, the number of jobs for the 37 states that did not raise their minimum wages was higher, on average, by 0.69 percent. Job growth since January (the month that these 13 states actually hiked their minimum wages) was slower in states that raised the minimum wage than in states that did not.

We don’t report these particular statistics as evidence that raising the minimum wage slows job growth. Our point instead is that finding simple trends, especially those that are highly sensitive to the time period analyzed, and then drawing policy conclusions is scientifically illegitimate. Using such a method makes it far too easy to cherry-pick from the data those numbers that support your preferred policy. So just as our comparison of January 2014 to June 2014 employment data is no evidence that raising the minimum wage reduces job growth, Obama’s comparison of December 2013 employment data to June 2014 data is no evidence that raising the minimum wage enhances job growth.

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