Republicans are responding to President Obama's proposal raise the federal minimum wage by arguing that requiring businesses to pay their workers at least $9 an hour would lead employers to shed jobs or increase prices and pass the costs onto consumers.
"When you raise the price of employment, guess what happens? You get less of it," House Speaker John Boehner (R-OH) said at a House Republican press conference on Wednesday. Sen. Marco Rubio (R-FL) agreed, explaining that "the impact of minimum wage usually is that businesses hire less people." It's a fairly logical and simple argument: increasing the cost of labor causes competitive employers to cut employment or hours to make up for the additional cost, hurting the very low-skilled workers that the policy was designed to benefit in the first place.
The problem? What sounds perfectly reasonable in theory doesn't actually hold up in the real world and the overwhelming empirical consensus shows little if any effect of the minimum wage on employment.
For instance, in 2009 researchers conducted a review of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment and when they graphed "every employment estimate contained in these studies (over 1,000 in total), weighting each estimate by its statistical precision, they found that the most precise estimates were heavily clustered at or near zero employment effects." The following year, researchers published a study comparing restaurant employment differences across 1,381 U.S. counties with different levels of the minimum wage" in every quarter between 1990 and 2006. Their conclusion: "The large negative elasticities in the traditional specification are generated primarily by regional and local differences in employment trends that are unrelated to minimum wage policies."
The findings raise an important question: if employers aren't responding to minimum wage increases by the seemingly logical action of cutting employment — which is what Republicans predict — then, what are employers doing?
John Schmitt finds the answer in a paper out this month for the Center for Economic and Policy Research. After reviewing the available data, he concludes that employers react to minimum wage increases by adjusting their practices in a wide range of ways, some of which can strengthen their businesses and the economy as a whole: