Sunday, December 11, 2016

Don Boudreaux's letter to Barry Ritholtz at Bloomberg

Here is Don Boudreaux's comment on a Bloomberg column by Barry Ritholtz.

The notion that a higher minimum wage will not cost any jobs is ridiculous.  Those who point to "academic" studies that do not find job losses from minimum wage laws fail to understand the limitations of statistics or statistical concepts.  For example, the failure to find a statistically significant negative impact from a higher minimum wage does not imply that there is none.  It does not even imply that there is a high probability that there is none. Furthermore, these non-believers fail to understand the importance of theory vs. statistics.

For the techies, consider a statistical analysis that finds that estimated job losses are positive, but with a p-value of only 25% under the null hypothesis of no job losses.  This result is declared not statistically significant, and the null hypothesis is accepted - leading to widespread belief that a higher minimum wage does not destroy jobs.  However, a maximum likelihood approach suggests that a better bet is that it is more likely that jobs are lost than that they are not.

Here is Don's letter.

Mr. Ritholtz:

Writing at Bloomberg, you assert that it is “well-established” that modest increases in the minimum wage cast no low-skilled workers into the ranks of the unemployed (“Minimum-Wage Foes Tripped Up by Facts,” Dec. 7). With respect, you are obviously quite unfamiliar with modern research on the employment effects of minimum wages. Here’s a list only of some of the more prominent, recent scholarly empirical studies whose authors that find that even modest hikes in minimum wages destroy some jobs:

– Jeffrey Clemens and Michael Wither, “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers” (2014) (finding that “minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point”);

– Jeffrey Clemens, “The Minimum Wage and the Great Recession: Evidence from the Current Population Survey” (2015) (finding that minimum-wage increases during the Great Recession “reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points”);

– Jonathan Meer and Jeremy West, “Effects of the Minimum Wage on Employment Dynamics” (2013) (finding that “the minimum wage reduces job growth over a period of several years. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers”);

– David Neumark, J.M. Ian Salas, and William Wascher, “More on recent evidence on the effects of minimum wages in the United States” (2014) (finding that “the best evidence still points to job loss from minimum wages for very low-skilled workers – in particular, for teens”);

– Yusuf Soner Baskaya and Yona Rubinstein, “Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings across the U.S. States” (2012) (finding that “[m]inimum wage increases boost teenage wage rates and reduce teenage employment”).

Indeed, you can read a whole book on the matter by David Neumark and William Wascher, Minimum Wages (2008), published by the MIT Press, that concludes that minimum wages do indeed destroy some jobs.

You can dispute the accuracy of all of the above findings, but you cannot dispute that these findings, along with many others that reach similar conclusions, are part of the scholarly record – a record that belies your assertion that it is “well-established” that modest minimum-wage hikes destroy no jobs

Your readers deserve better from you.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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