An economics professor at the University of California, Irvine estimates that state and local minimum wage increases have cost up to 200,000 jobs since the Great Recession, but says the figure must be evaluated against the benefits to those who manage to keep their jobs.
In a report published Monday by the Federal Reserve Bank of San Francisco, David Neumark, who directs UC Irvine’s Center for Economics and Public Policy, discusses the “conflicting evidence” on the minimum wage issue, explaining that “the evidence suggests that it is appropriate to weigh the cost of potential job losses from a higher minimum wage against the benefits of wage increases for other workers.”
Neumark begins by pointing out that standard economic models expect that minimum wage increases will generally lead to job losses, particularly for teenagers and other low-skilled workers. Not only does a higher cost of labor encourage employers to substitute other inputs like machinery for human labor, he explains, but it also leads to “labor-labor substitution,” whereby high-skilled workers displace low-skilled workers and obscure the actual job losses among those the minimum wage hike was primarily intended to help.
While those predictions are purely theoretical, Neumark also examines previous research into the real-world consequences of minimum wage increases and finds support for the theory.
The earliest studies, he notes, were determined based on national data that for every 10 percent increase in the wage floor, employment for low-skilled workers declines by between 1 and 2 percent. More recent studies, however, have offered conflicting conclusions.