Despite the opposition of businesses statewide and especially along the Jersey Shore, the state Legislature on Thursday decided to ask voters in November’s election to amend the state Constitution to provide perpetual, automatic increases to the minimum wage, starting with a 14 percent rise.
The $1 immediate jump would take the state’s minimum wage to $8.25 an hour, and would be followed each year by constitutionally mandated increases based on cost-of-living calculations, regardless of the will of future Legislatures.
The proposal and vote was entirely partisan, and there are significant political reasons for it, including boosting turnout among certain constituencies in the election.
Voters, though, may wish to consider what economists think about the actual effects of mandating higher minimum pay — especially since the state and nation are mired in a multiple-year downturn with high unemployment and slow growth.
The basic economics of minimum wage increases is straightforward: Employers who are compelled to pay more for the lowest-skill labor will try to use less of it.
This is a common-sense market effect, similar to when consumers try to use less gasoline when they have to pay more for it.
A widely publicized study that claimed to repudiate this effect — and even assert that making employers pay a higher minimum wage actually caused them to hire more people — looked for effects from the 80-cent increase in the New Jersey minimum wage to $5.05 in 1992.
The study was done by Alan Krueger, who was chief economist of the Clinton administration’s Labor Department and now is chairman of the White House Council of Economic Advisers, and David Card, a fellow Princeton University economist.
The Krueger-Card study in several ways seems designed to disprove the loss of jobs due to increased minimum wages.
For starters, they studied employment only at 410 fast-food restaurants, whose staffing needs might be more fixed than many other businesses with low-wage workers.
The fast-food restaurants were studied only during the recession of the early 1990s. In a downturn, sales at fast-food restaurants might actually improve as consumers reduce their spending on dining out but don’t eliminate it.
Krueger and Card looked for possible minimum wage effects on employment only during a seven- to eight-month period within 1992. That excluded all restaurants that waited to see the effect on their budgets or adjusted their staffs for the coming year.
So in their study, New Jersey fast-food places showed no reduced employment in the several months immediately after a minimum wage increase.
What’s more, “we find that the increase in the minimum wage increased employment,” Krueger and Card wrote in their conclusions.
They embraced that fantastic and unexplained result, rather than become suspicious that maybe something such as increased demand for cheap food in a downturn might have unduly influenced their carefully chosen narrow sample.
An extensive review of research on minimum wages found most studies show otherwise, and warned of flaws in such research that can easily distort the results.
David Neumark, of the University of California, Irvine, and William Wascher, of the Federal Reserve Board, examined 102 studies of minimum wages and found that two-thirds of them showed negative effects on employment, while just eight found positive effects.
Their 2007 report focused on 33 studies with the most credible evidence, and 28 of those, or 85 percent, found employment was reduced.
“We see very few — if any — cases where a study provides convincing evidence of positive employment effects of minimum wages,” Neumark and Wascher wrote.
The pair warned researchers against distorting their results by using “too short a time period with which to capture the full effects of minimum wage changes” or by using teenagers as convenient substitutes for low-wage workers who are often not teens but low-skilled.
“We view the literature — when read broadly and critically — as largely solidifying the conventional view that minimum wages reduce employment among low-skilled workers,” they wrote.
Neumark and Wascher concluded that the effect on jobs is “only one piece of the analysis necessary to assess whether minimum wages are a useful policy tool for improving the economic position of those at the bottom of the income distribution.” Other benefits may outweigh the job losses among those the policy is supposedly intended to help.
Among politicians, of course, whatever helps themselves and their party can easily outweigh the effects on the rest of us.
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