The shaky data of the federal minimum wage

By Savannah Marie
March 8, 2014

At this point, you might be tired of hearing about the minimum wage debate. Unfortunately, it’s far from over. It remains – and is likely to remain for some time – an issue as divisive as it is misunderstood. The debate has resurfaced almost annually for some time now, prompting politicians and economists alike to claim that they have all the answers. Regrettably, it seems to be an argument largely fueled by emotion rather than by empirical inquiry. The only problem is, even the data that does exist is open to interpretation.

The Same Old Story

Let’s cover the basics first. President Obama is once more calling for an increase in the minimum wage, claiming that it will provide some much needed assistance to lower-income Americans. That sounds like a great idea, but detractors are – as always – arguing that an increase in the minimum wage will actually harm the poorest Americans, since employers will have to cut jobs to pay for the wage hikes.

The problem, of course, is that there’s no real way to test either of these hypotheses. The proposed wage increase would be at the federal level, rather than the state level; without first enacting sweeping changes, we cannot know which side of the debate has the right of it.

State or Federal?

The state and federal minimum wages are not intrinsically linked. As of January 2014, 21 states (with the addition of Washington, D.C.) have a minimum wage that exceeds the federal minimum wage, 20 States match the federal minimum wage, four states fall below the FMW, and five states have no minimum wage requirements at all. Washington state currently boasts the highest statewide minimum wage at $9.32, beating the federal minimum wage of $7.25 by $2.07.

Washington, along with 12 other states, kicked off 2014 with wage hikes for minimum wage workers, indicating that they weren’t willing to wait for President Obama or Congress to act on the proposed wage increase for federal contractors to $10.10. No state currently has a minimum wage that high, but the fact that states have proven to act autonomously on this contentious issue, proportional to their unique economic climates, is arguably a step in the right direction, and an indication that this issue should remain in the hands of the leadership of each state. With bankruptcy attorneys doing a roaring trade across the country, minimum wage-earners are undoubtedly grateful that states have stepped up to act even while Congress remains gridlocked.

A Case Study

The freedom of each state to determine its own minimum wage may prove to be the very best way to test the long-term effects of higher wages, and indeed, may already have done so. In 1992, Pennsylvania and New Jersey served as an important case study, which economist David Card had attempted to bring to wider attention.

All those years ago, New Jersey had proposed a minimum wage increase, while Pennsylvania’s was set to remain the same. Card and his colleagues set out to study what would happen next, using fast food restaurants as a metric.

What they found was that New Jersey actually experienced an increase in employment, though a slight one. Pennsylvania did not. Card presented his findings in the book Myth and Measurement: The New Economics of the Minimum Wage.

Here’s where things get tricky. Another economist, David Neumark, decided to put Card’s findings to the test – and came to the opposite conclusion. Using payroll data from restaurants in both states, he found that the number of jobs did indeed dip slightly in New Jersey after their wage increase.

That could have been the end of it, but Card and his colleagues eventually revisited their research – this time with government data – and confirmed their original findings; raising the minimum wage did not, in fact, cost jobs.

Where Will It End?

As you can probably tell by now, there’s no one answer in this debate. When even supposedly sovereign empirical data doesn’t paint a clear picture, it seems as though this debate is destined to continue for the foreseeable future.

Parties interested in finding the middle-ground in the debate should take note that it may already exist; leaving the question of minimum wage up to each individual state may represent the very best way to take care of lower-income households – while still factoring in the economic climate of each state. An across-the-board increase in the federal minimum wage would seem to depend upon each state having roughly congruent economic realities, which is clearly not the case.

The most recent research, published by the Congressional Budget Office – a nonpartisan entity – confirmed that an increase in the minimum wage at the federal level could cost as many as half a million jobs. More than 16 million workers may see short-term relief, but at what cost? For now, the uncertainty remains.

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Posted by on March 8, 2014. Filed under Economy,Recent News,Top News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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