David Neumark and William L. Wascher – Minimum Wages

David Neumark and William L. Wascher – Minimum Wages

A comprehensive literature review covering more than 100 studies. Neumark and Wascher also discuss findings in their own work. Overall, they find that minimum wages have small disemployment effects. As a poverty relief measure, they are also not as effective as other measures such as straight cash or the Earned Income Tax Credit. In part this is because minimum wages often miss their intended target; many minimum wage earners are disproportionately young people who still live with their parents in households well above the poverty level. Minimum wages also increase inequality among low earners. People who keep their jobs often get a modest raise. But companies will dump their lowest-skilled workers and take on fewer part-time workers, which includes many women with young children who want to help make ends meet. They find similar effects in reviewing research on other countries including Canada, the UK, Mexico, Brazil, and much of Latin America.

Surprisingly for such a thorough book, Neumark and Wascher leave out a long list of non-wage tradeoffs that come with minimum wages. They address hour cuts, hiring freezes, price increases, lower profits, and unintended income distributions. But they mostly leave out benefit cuts, workplace conditions, stricter break and vacation policies, job perks such as employee discounts, free parking and meals, and other possible tradeoffs. These are difficult to measure with any method besides surveys, which are notoriously unreliable. As a result, there is little to no empirical research on these tradeoffs, even though economists, legislators, and pop culture have acknowledged their existence for decades.

As result, most minimum wage literature focuses on employment, which is easier to measure. It is also the most drastic tradeoff employers can make, which is why they go to great lengths to avoid doing it, preferring other tradeoffs that are unfortunately harder for outside researchers to measure. This “tyranny of metrics” effect has lowered the quality of the minimum wage debate on both sides.