The Center for Economic and Policy Research (CEPR), which is generously funded by the AFL-CIO and the SEIU, is a staunch advocate for increasing the minimum wage. CEPR’s senior economist, John Schmitt, has been a loyal foot solider in the minimum wage battle for years, writing on the topic in the 1990s at Big Labor’s research wing.
Schmitt and CEPR have been in the news recently, with numerous outlets–including MSNBC, Huffington Post, Associated Press, NPR, and USA Today–reporting on a recent analysis they did of job growth in states that raised their minimum wages. CEPR reported that “employment growth was faster in states where the minimum wage went up,” leading Schmitt to tell the Associated Press that these numbers raise “serious questions about the claims that a raise in the minimum wage is a jobs disaster.”
It’s an attractive thought for proponents of a wage hike. But the entire premise is based on an analysis that’s so intellectually dishonest, not even CEPR’s own senior economist believes it.
Economists have been studying the minimum wage since the late 1940s. The theory they’re testing, in a nutshell, is whether demand for employees earning at or near the minimum wage falls as the price to hire them rises. In their definitive summary of the research on this subject, UC-Irvine’s David Neumark and the Federal Reserve Board’s William Wascher put it this way: The “prediction of a reduction in labor demand applies unambiguously only to less-skilled workers whose wages are directly raised by the minimum wage.”
For that reason, economists have generally studied employees who are more likely to be affected by a wage hike. Less-educated young adults, for instance, are often the focus of this research. Because so few people actually earn the minimum wage (just over one percent of the workforce earns the federal minimum), a study that focused on too broad a metric (e.g. overall employment) would produce meaningless results. As the graph below demonstrates, even a significant reduction in the number of people employed at the federal minimum wage would barely register in the context of the broader US economy.
This idea–that you can’t determine the impact of a higher minimum by looking at economy-wide employment numbers–isn’t controversial. Even CEPR’s Schmitt, in a paper released last year, stated that “no researchers … believe that the minimum wage levels prevailing in the United States have had any impact on the overall level of employment.” It’s like finding that states with a higher minimum wage had more carrot sales, or TV purchases – it’s a curious fact, but it also has nothing to do with whether or not a minimum wage increase hurts less-skilled job seekers.
Today, however, Schmitt and his researchers are encouraging the conclusion that these overall employment numbers can tell us something about the impact of the minimum wage. Why the change of heart? CEPR, it appears, is more interested in gaining media coverage for its donors’ preferred policies than a serious discussion about the effects of a higher minimum wage on employment. The research consensus is overwhelming that minimum wage increases do reduce employment for the least-skilled employees. Instead of being forthcoming about this consensus, CEPR has opted for a less intellectually-honest path.