Does a Higher Minimum Wage Mean Higher Unemployment? – Next City
The Equity Factor

Does a Higher Minimum Wage Mean Higher Unemployment?

(AP Photo/David Goldman, File)

Amid any debate about raising the minimum wage — whether at the city or state or federal level — there are typically two camps. Proponents say higher wages lead to improved standards of living that come back full circle to support local economies. Opponents say delivering bigger paychecks forces employers to cut costs and services and can damage a small business’s bottom line.

Researchers at the University of California, San Diego published a study in September that challenged a commonly accepted rationale of why unemployment numbers in the U.S. peaked near the end of the last decade. They argued that the country wasn’t losing jobs because of the economic downturn now known as the Great Recession — instead, they dropped off because the federal minimum wage was raised from $5.15 to $7.25 between 2007 and 2009.

Months later, their research is now the target of a rebuttal.

On Dec. 6, Ben Zipperer, an economist with the Economic Policy Institute, published an article that argues parts of the UCSD researchers’ results don’t hold water. One key factor, he says, is the fact that for the South and eastern Mountain States, low-wage workers were seeing employment decline numbers rise at higher rates than Western states. That’s important because while the latter states generally raised their minimum wage hardly or not at all to meet new federal standards, South and eastern Mountain States like Georgia (where the state minimum wage is still $5.15) had to make a bigger jump when meeting the federal law.

“These groups of states had different minimum wages but also were affected differently by the Great Recession regardless of the minimum wage differences,” says Dan Crawford, a press liaison with EPI. “So you can’t say that any employment declines were the result of raising the minimum wage.”

Trying to separate the federal minimum wage hike from the Great Recession to measure its impact is enticing to researchers because it’s like a perfect petri dish for two economic theories. One is that employers should raise wages during economic contractions because it supports demand: If more workers have more cash to spend, and there’s a higher wage floor, they’re more likely to feel comfortable enough to spend it.

Another is that in an economic downturn, employers will need to cut employee numbers and keep wages stable to be able to make a profit off of diminishing levels of supply and demand.

But it’s near impossible to study at the national level, Zipperer thinks. “What’s attractive about that [line of research] is also its signature weakness,” he says, “because it’s very difficult to separate out the facts of a huge economic collapse from other policies that are going on.”

He says even the slightest error in collecting or organizing data can produce results that bias your favored answer, and make you think you’re onto something huge. “It’s kind of like being on an ice skating rink, and even a little push can move you really far away from where you want to end up,” he says. “It’s one of the difficulties of studying this topic.”

The UCSD researchers, Jeffrey Clemens and Michael Wither, are looking into Zipperer’s research and are planning on issuing a proper response soon, according to Clemens. One unknown, he says, is whether Zipperer’s decision to study the minimum wage-Great Recession combo on a regional basis is more reliable than their method, pointing to the fact that even comparing a state like Florida with its neighbors risks bias.

“Readers familiar with the housing crisis will be aware that Florida experienced one of the most extreme housing declines in the country,” says Clemens. Pairing it with every other state in the South is still prone to error in a similar way.

The takeaway consensus: Putting a nail on the coffin of this issue will be immensely challenging. Researchers studying minimum wage across the country are divided because it’s difficult to know how much weight to give certain policies or economic circumstances when it comes to researching shifts in jobs and livable wages. That’s also why both sides disagree even when it comes to identifying the clearest path to an answer.

But that challenge is what makes researchers like Zipperer fascinated in researching it further. “It’s a very interesting question,” he says, “because there’s not a clear answer from economic theory about what’s going to happen.”

The Equity Factor is made possible with the support of the Surdna Foundation.

Johnny Magdaleno is a journalist, writer and photographer. His writing and photographs have been published by The Guardian, Al Jazeera, NPR, Newsweek, VICE News, the Huffington Post, the Christian Science Monitor and others. He was the 2016-2017 equitable cities fellow at Next City. 

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Tags: income inequalitysmall businessminimum wage