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Few policy questions have generated more economic research than the minimum wage, and few policy debates have been as poorly served by the evidence available as minimum wage debates in the United States. For decades, the standard economic model predicted straightforwardly that minimum wage increases would reduce employment: if you raise the price of labor above the market wage, less labor will be demanded. The empirical literature, particularly since Card and Krueger's landmark 1994 study comparing employment in fast food restaurants in New Jersey and Pennsylvania after a New Jersey minimum wage increase, has substantially complicated this prediction without resolving all the questions it raises.

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== What the Modern Evidence Shows ==

The most credible contemporary research, using natural experiments, border discontinuity designs, and large administrative data sets, generally finds small to negligible employment effects from moderate minimum wage increases. Meta-analyses of the post-Card and Krueger literature find that most studies cluster near zero employment effects, with more studies on the positive side than the pre-existing theory predicted. The industries most affected by minimum wage increases, primarily food service, retail, and care work, show consistently small disemployment effects in most U.S. contexts studied to date.

The income effects are clearer. Minimum wage increases raise wages for low-wage workers, as designed. Studies consistently find that workers in affected wage ranges see real income gains following minimum wage increases, and that these gains are not fully offset by reduced hours or employment. The distributional effects favor low-income workers and households, though the relationship between low wages and low household income is imperfect because some minimum wage workers are not in low-income households.

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== Where the Evidence Is Less Certain ==

The evidence is less certain for large minimum wage increases in lower-wage labor markets. Most U.S. minimum wage research has studied increases in the range of one to three dollars per hour in relatively high-wage metropolitan labor markets. The question of what happens when a $15 federal minimum is applied to labor markets where median wages are $15 or $16 per hour, as in parts of the rural South and Midwest, is less well studied. Economic theory suggests that the employment effects should be larger when the minimum wage represents a larger share of the prevailing wage distribution, and some studies of the Seattle minimum wage increase found larger disemployment effects in surrounding lower-wage areas than in the city itself.

The research also reveals effects on prices, business entry and exit, and automation investment that are real but modest in magnitude. Minimum wage increases do produce some price increases in affected sectors, typically in the range of 0.4 to 0.7 percent for a 10 percent minimum wage increase. These price increases represent a partial transfer of the wage increase cost to consumers, some of whom are themselves low-income. The net distributional effect of this transfer is context-dependent and complicates simple calculations of who benefits and who bears costs.

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== Policy Implications ==

The evidence supports cautious optimism about moderate minimum wage increases in high-wage labor markets and more caution about large increases in low-wage regional labor markets. It supports indexing minimum wages to inflation or median wages to prevent the erosion that occurs when the nominal minimum wage is not adjusted for years. It supports the case for regional variation, either through state and local flexibility on top of a federal floor or through indexed adjustment mechanisms that account for regional wage differences. And it argues against the polarized framing of minimum wage debates, in which the evidence is either entirely supportive of any increase or entirely damning of any. The honest answer is that the effects are real, moderate in most contexts, and sensitive to the specific increase and market conditions in ways that require careful policy design.

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''Originally published July 10, 2018 on [https://docmoates.com/blog/minimum-wage-policy-navigating-the-evidence-in-a-contested-debate/ docmoates.com].''