With much of President-Elect Trump’s cabinet in place, the direction the administration could take on some policy issues is becoming clearer. Among the priorities that likely won’t be carried forward: support for minimum-wage hikes. Andrew Puzder—President-Elect Donald Trump’s pick for U.S. Secretary of Labor has opposed the federal minimum wage rising to $10.10 an hour, arguing that such a hike would reduce employment. In a 2014 op-ed in the Wall Street Journal, he wrote that in reality, hiking minimum pay would lead business owners to “cut jobs and rely more on technology” instead of raising prices to make up for costlier payrolls or taking a hit to profits.
Whether people agree with Puzder often comes down to their ideological bent—do they trust the market or do they believe in government intervention? But, in the end, this is not a theoretical question—it’s one that data should be able to settle, and there’s lots of data and many, many studies out there. Yet, despite the mountains of research over the past few decades, there’s a lack of agreement among economists on this question—which affects an estimated 2.6 million American workers who currently earn the minimum legal wage. There are even studies about why the effects of a minimum wage are so hard to discern.
A recent report by President Obama’s Council of Economic Advisers adds to the pile of evidence that discredits Puzder’s position. The study looked at minimum-wage increases implemented over the past two years, and their effects on workers in the leisure-and-hospitality industry in particular. This industry—a category which includes food-service workers—is particularly interesting because 15 percent of its workforce earn wages at or below the federal minimum, the highest share of any industry, according to the Bureau of Labor Statistics. The CEA study finds that “employment in the leisure and hospitality industry follows virtually identical trends in states that did and did not raise their minimum wage,” the authors, the economists Sandra Black, Jason Furman, Laura Giuliano, and Wilson Powell, write. In other words, increasing wages doesn’t result in decreased employment or hours worked.
The CEA’s conclusions are consistent with landmark research by David Card and Alan Krueger in the 1990s. That case study, which looked at a minimum-wage hike in New Jersey and its effects on the fast-food industry, found no negative effect on employment either.
Not everyone finds that argument—or the data that supports it—convincing. David Neumark, an economist and the director of the Economic Self-Sufficiency Policy Research Institute at the University of California, Irvine, whose research has found negative employment effects from minimum-wage laws, said via email that while the report was “interesting evidence, [it was] clearly not up to the standards of the best academic work estimating the employment effects of minimum wages.” He argues that though the leisure and hospitality industry is indeed one with low-wages, the majority of workers in it earn above minimum wage. “Research shows that the stronger evidence of job loss emerges when you really zoom in on directly affected workers,” he wrote. “If we can't see a clear minimum wage effect on wages in their data, [it is] perhaps because the industry is too broad, then we shouldn't expect to see employment effects.”
But the CEA would contend that the fact that their data was nuanced enough to showed a shift in wages, but didn’t find any change in employment, suggests that it wasn’t too broad, that there just isn’t an employment effect.
Though some people may never be convinced, the wave of new minimum-wage regulations at the state and municipal level (not to mention some of these raises are significant) means that the years ahead will provide more opportunities for data and research, which will hopefully bring economists to greater agreement about how wage increases impact the economy.
“Because of the federal election, any action on minimum wages will be at the state and local level. We are going to see increasingly wider gaps between the regulations and policies of different states,” David Card said in an email. “I think that economists will be very interested in following how this pans out: Will workers and consumers and firms in states that adopt tougher regulations (higher minimum wages, more generous health insurance, tougher air quality regulations, etc.) be helped or harmed?”
That said, even with solid evidence to the contrary, some people will not budge from their positions, whether because of ideological rigidity or personal financial interest (or both). Many economists wish it were otherwise, of course: What more could they want than for their research to provide a definitive answer for a question that impacts so many?
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