About That Minimum Wage Debate….

Who was it who coined the immortal observation that “It ain’t what we don’t know that hurts us–it’s what we know that just ain’t so”?

I thought about that when I read a recent report  about job creation experience in states that had recently raised their minimum wage.

Economists at Goldman Sachs conducted a simple evaluation of the impact of these state minimum-wage increases. The researchers compared employment changes between December and January in the 13 states where the minimum wage increased with the changes in the remainder of the states, and found that the states where the minimum wage went up had faster employment growth than the states where the minimum wage remained at its 2013 level.

When we updated the GS analysis using additional employment data from the BLS, we saw the same pattern: employment growth was higher in states where the minimum wage went up. While this kind of simple exercise can’t establish causality, it does provide evidence against theoretical negative employment effects of minimum-wage increases.

It has always seemed reasonable to assume that higher wages would depress job creation.  What that simple logic missed, however, were the many factors other than wage rates that influence the decision whether to add employees. The cited study joins an overwhelming body of evidence that the simple equation is wrong.

It’s another one of those things we know that just ain’t so.

 

2 thoughts on “About That Minimum Wage Debate….

  1. Henry Ford gets credit for things that he didn’t pioneer and no credit for things that he did.

    In 1914 he fought his board tooth and nail but succeeded in doubling his assembly workforce daily wage to $5. Why? Greed. He wanted all of those workers to be able to afford Ford’s. That, as much as anything, sealed his corporate success.

    Business leaders used to know that growth was the only measure of success. Wall St changed their reward structure so that company exec’s rewards followed the same cause as fund managers. Short term earnings.

    Nothing complex has a single cause but that cultural shift, as much as any other thing has wounded our economic progress. That is for all of us but financial and corporate executives.

  2. Actually, I believe that Henry Ford increased wages to fight the high turnover rate of his employees (I think around 50%). He was wise enough to realize the side benefit of selling cars to the masses — eventually. He reportedly didn’t want to make the Model T, preferring expensive, high powered cars (muscle cars if you will) for the rich.

    Actually, the premise of higher wages decreasing job creation has always fallen flat on the surface, especially in the modern era. Employers only add jobs when then have a need for extra workers. They don’t wake up one morning and say “Hey, wages are low. I think I’ll hire five more people”. This report just makes you stop and think.

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