UCI News

Minimum wage increases result in job loss, UCI-led study reaffirms

December 16, 2014
Minimum wage increases result in job loss, UCI-led study reaffirms
David Neumark, UCI economics professor, recently published a study that shows government-mandated minimum-wage hikes result in job losses for low-skilled workers. Steve Zylius / UC Irvine

Irvine, Calif., Dec. 16, 2014 – No matter which way you slice it – or in this case, inflate it – minimum wage increases result in long-term job loss, according to David Neumark, UC Irvine Chancellor’s Professor of economics. That’s the finding of a study published last week in the IZA Journal of Labor Policy.

“There has been a continuing trickle of studies claiming that a higher minimum wage may not cause job loss, which have provided fodder to policymakers and others seeking increases,” Neumark said. “But our new evidence directly addresses this claim and shows that it is simply not true. Higher minimum wages do destroy jobs.”

Co-authors are J.M. Ian Salas, research fellow at the Harvard Center for Population & Development Studies and a 2013 UCI Ph.D. graduate, and William Wascher, economist with the Board of Governors of the Federal Reserve System in Washington, D.C. The finding is consistent with that of their previously published work, summarized in the 2008 book Minimum Wages.

The new study addresses the current dispute about comparison groups used to estimate the effects of past minimum wage increases – an ongoing challenge in evaluating any policy because researchers cannot observe the same economy with and without the policy, Neumark noted.

Recent work has contested the use of broad U.S. comparisons that measure employment changes in states with minimum wage increases versus those without, arguing that only adjacent states or counties should be used as comparisons. When the parameters were narrowed in this way to adjust for what would have happened had the minimum wage not gone up, researchers assert, there was no net decrease in employment.

“These studies raise a good question: What do you use as a comparison or proxy group for states where the minimum wage increased?” Neumark said. “It turns out that it doesn’t matter.”

His new analysis shows that when gauging the effects of minimum wage hikes with either comparison method – one restricted by proximity or one taking a broader view – the evidence consistently points to net job loss over a span of one to two years.

“There are a lot of strong opinions about low wages and how much employers should pay workers. But we have to separate our feelings about low wages from the evidence on the effects of the government simply requiring employers to pay higher wages,” Neumark said.

“The data and the evidence tell us that a higher minimum wage results in job loss for low-skilled workers. We may be willing to accept that job loss in return for other benefits of higher wages for some workers, but we can’t pretend there will be no lost jobs.”

View the study online at http://www.izajolp.com/content/pdf/2193-9004-3-24.pdf.

Media contact: Heather Ashbach, Executive Director of Communications, School of Social Sciences – hashbach@uci.edu

About the University of California, Irvine: Founded in 1965, UCI is the youngest member of the prestigious Association of American Universities. The campus has produced three Nobel laureates and is known for its academic achievement, premier research, innovation and anteater mascot. Led by Chancellor Howard Gillman, UCI has more than 30,000 students and offers 192 degree programs. Located in one of the world’s safest and most economically vibrant communities, it’s Orange County’s second-largest employer, contributing $4.8 billion annually to the local economy.

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