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Award-Winning Study: Minimum Wage — Solid Benefits, Small Costs

After reviewing more than 200 scholarly papers on the minimum wage for their book What Does the Minimum Wage Do?, Dale Belman and Paul J. Wolfson have found that it does pretty much what policymakers intended it to. 

Their conclusions, in a nutshell:

[I]ncreases in the minimum wage raise the hourly wage and earnings of workers in the lower part of the wage distribution and have very modest or no effects on employment, hours, and other labor market outcomes.  The minimum wage can then, as originally intended, be used to improve the conditions of those working in the least remunerative sectors of the labor market.  While not a full solution to the issues of low-wage work, it is a useful instrument of policy that has low social costs and clear benefits.

This thorough study recently won Princeton University’s 2014 Bowen Award for the year’s outstanding book on labor and public policy.

Belman and Wolfson describe the above conclusions as “things we know with confidence” — with the caveat that they come from studies of moderate minimum wage increases like those in the United States over the past few decades. 

Their findings, they note, don’t square with critics’ claims that the minimum wage has unintended consequences that defeat its purpose by raising unemployment among low-income workers and providing too many benefits to people who don’t need them:

The moderate increases seen in the United States have resulted in increased earnings with little or no effect on employment. The increase in earnings has gone largely to households in the lower half of the earnings distribution.

Critics often call for scrapping the minimum wage because the Earned Income Tax Credit (EITC) provides a better way of helping low-wage workers.  Belman and Wolfson have a more nuanced reading, more consistent with the views of those of us who think the minimum wage and EITC are complementary policies, not competing approaches, for achieving the same goal:

While not a stand-alone policy for resolving the issues of low income in the United States, the effectiveness of moderate increases in the minimum wage in raising earnings with few negative consequences makes it an important tool for labor market policy.

Policymakers have to consider many practical questions in crafting legislation to raise the minimum wage.  But they shouldn’t be swayed by arguments that it doesn’t have the intended positive effects.  The evidence is strong that it does.