Minimum Wages and Job Growth: a Statistical Artifact
Arindrajit Dube” Associate Professor of Economics – UMass
In a recent paper, Jonathan Meer and Jeremy West argue that it takes time for employment to adjust in response to a minimum wage hike, making it more difficult to detect an impact by looking at employment levels. In contrast, they argue, impact is easier to discern when considering employment growth. They find that a 10 percent increase in minimum wage is associated with as much as 0.5 percentage point lower aggregate employment growth. These estimates are very large, as John Schmitt explains in a recent post
, and far outside the range in the existing literature. But are they right?
As I show in a new paper, the short answer is: no. The negative association between job growth and minimum wages is in the wrong place: it shows up in a sector like manufacturing that has few minimum wage workers, but is absent in low-wage sectors like food services and retail. In other words, it is likely a statistical artifact, and not a causal relationship.