Read the articles describing the positions  David Neumark:
preeminent economists who have respectively opposed expanding
minimum wage laws.
1. In 4 to 6 sentences, summarize David Neumark’s main arguments against expanding
minimum wage laws.
Read the articles describing the positions  David Neumark:
preeminent economists who have respectively opposed expanding
minimum wage laws.
1. In 4 to 6 sentences, summarize David Neumark’s main arguments against expanding
minimum wage laws.

The First Article is below: 
The Effects of Minimum Wages on Employment
BY DAVID NEUMARK
The minimum wage has gained momentum among policymakers as a way to alleviate rising
wage and income inequality. Much of the debate over this policy centers on whether raising the
minimum wage causes job loss, as well as the potential magnitude of those losses. Recent
research shows conflicting evidence on both sides of the issue. In general, the evidence
suggests that it is appropriate to weigh the cost of potential job losses from a higher minimum
wage against the benefits of wage increases for other workers.

It is easy to be confused about what effects minimum wages have on jobs for low-skilled workers.
Researchers offer conflicting evidence on whether or not raising the minimum wage means fewer jobs for
these workers. Some recent studies even suggest overall employment could be harmed. This Letter sheds
light on the range of estimates and the different approaches in the research that might explain some of the
conflicting results. It also presents some midrange estimates of the aggregate employment effects from
recent minimum wage increases based on the research literature.
The controversy begins with the theory
The standard model of competitive labor markets predicts that a higher minimum wage will lead to job
loss among low-skilled workers. The simplest scenario considers a competitive labor market for a single
type of labor. A “binding” minimum wage that is set higher than the competitive equilibrium wage reduces
employment for two reasons. First, employers will substitute away from the low-skilled labor that is now
more expensive towards other inputs, such as equipment or other capital. Second, the higher wage and
new input mix implies higher prices, in turn reducing product and labor demand.
Of course, the labor market is more complicated. Most important, workers have varying skill levels, and a
higher minimum wage will lead employers to hire fewer low-skilled workers and more high-skilled
workers. This “labor-labor” substitution may not show up as job losses unless researchers focus on the
least-skilled workers whose wages are directly pushed up by the minimum wage. Moreover, fewer jobs for
the least-skilled are most important from a policy perspective, since they are the ones the minimum wage
is intended to help.
In some alternative labor market models, worker mobility is limited and individual employers therefore
have some discretion in setting wages. In such “monopsony” models, the effect of increasing the minimum
wage becomes ambiguous. However, such models may be less applicable to labor markets for unskilled
workers most affected by the minimum wage; these markets typically have many similar employers in
close proximity to each other (think of a shopping mall) and high worker turnover. Nonetheless, the
ultimate test is not theoretical conjecture, but evidence.

FRBSF Economic Letter 2015-37 December 21, 2015

2
Recent research on employment effects of minimum wages
The earliest studies of the employment effects of minimum wages used only national variation in the U.S.
minimum wage. They found elasticities between −0.1 and −0.3 for teens ages 16–19, and between −0.1 and
−0.2 for young adults ages 16–24. An elasticity of −0.1 for teens, for example, means that a 10% increase in
the wage floor reduces teen employment by 1%. Newer research used data from an increasing number of
states raising their minimum wages above the federal minimum. The across-state variation allowed
comparisons of changes in youth employment between states that did and did not raise their minimum
wage. This made it easier to distinguish the effects of minimum wages from those of business cycle and
other influences on aggregate low-skill employment. An extensive survey by Neumark and Wascher (2007)
concluded that nearly two-thirds of the more than 100 newer minimum wage studies, and 85% of the most
convincing ones, found consistent evidence of job loss effects on low-skilled workers.
Research since 2007, however, has reported conflicting findings. Some studies use “meta-analysis,”
averaging across a set of studies to draw conclusions. For example, Doucouliagos and Stanley (2009)
report an average elasticity across studies of −0.19, consistent with earlier conclusions, but argue that the
true effect is closer to zero; they suggest that the biases of authors and journal editors make it more likely
that studies with negative estimates will be published. However, without strong assumptions it is
impossible to rule out an alternative interpretation—that peer review and publication lead to more
evidence of negative estimates because the true effect is negative. In addition, meta-analyses do not assign
more weight to the most compelling evidence. Indeed, they often downweight less precise estimates, even
though the lower precision may be attributable to more compelling research strategies that ask more of the
data. In short, meta-analysis is no substitute for critical evaluation of alternative studies.
A second strand of recent research that conflicts with earlier conclusions argues that geography matters. In
other words, the only valid conclusions come from studies that compare changes among close or
contiguous states or subareas of states (for example, Dube, Lester, and Reich 2010). A number of studies
using narrow geographic comparisons find employment effects that are closer to zero and not statistically
significant for both teenagers and restaurant workers. The studies argue that their results differ because
comparisons between distant states confound actual minimum wage effects with other associated negative
shocks to low-skill labor markets.
Some follow-up studies, however, suggest that limiting comparisons to geographically proximate areas
generates misleading evidence of no job loss effects from minimum wages. Pointing to evidence that
minimum wages tend to be raised when labor markets are tight, this research suggests that, among nearby
states that are similar in other respects, minimum wage increases are more likely to be associated with
positive shocks, obscuring the actual negative effects of minimum wages. Using better methods to pick
appropriate comparison states, this research finds negative elasticities in the range of −0.1 to −0.2 for
teenagers, and smaller elasticities for restaurant workers (see Neumark, Salas, and Wascher 2014a,b, and
Allegretto et al. 2015 for a rebuttal). Other analyses that try to choose valid geographic comparisons
estimate employment responses from as low as zero to as high as −0.50 (Baskaya and Rubinstein 2012;
Liu, Hyclak, and Regmi 2015; Powell 2015; Totty 2015).

Some new strategies in recent studies have also found generally stronger evidence of job loss for low-
skilled workers. For example, Clemens and Wither (2014) compare job changes within states between

workers who received federal minimum wage increases because of lower state minimums and others
whose wages were low but not low enough to be directly affected. Meer and West (2015) found longer-term

FRBSF Economic Letter 2015-37 December 21, 2015

3
dynamic effects of minimum wages on job growth; they suggest these longer-term effects arise because
new firms are more able to choose labor-saving technology after a minimum wage increase than existing
firms whose capital was “baked in.”
How do we summarize this evidence? Many studies over the years find that higher minimum wages reduce
employment of teens and low-skilled workers more generally. Recent exceptions that find no employment
effects typically use a particular version of estimation methods with close geographic controls that may
obscure job losses. Recent research using a wider variety of methods to address the problem of comparison
states tends to confirm earlier findings of job loss. Coupled with critiques of the methods that generate
little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is
a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse
effects than earlier research suggested.
Recent minimum wage increases and implications
Despite the evidence of job loss, policymakers and the voting public have raised minimum wages
frequently and sometimes substantially in recent years. Since the last federal increase in 2009, 23 states
have raised their minimum wage. In these states, minimum wages in 2014 averaged 11.5% higher than the
federal minimum (Figure 1). If these higher minimum wages have in fact lowered employment
opportunities, this could have implications for changes in aggregate employment over this period.
Note that more states
(31) had minimums
above the federal level
just before the Great
Recession than do now
(Figure 2). The average
relative to the federal
minimum was nearly
three times as high at
32.3%. However, this is
in part because the
federal minimum wage
has increased 41%
since the beginning of
2007. To compare the
average change across
states between 2007
and 2014, I account for
the smaller number of
states with higher
minimums in 2014 and
their lower levels, and
weight the states by
their working-age
population. I find that
minimum wages were

Figure 1
Percent difference between state and federal minimum wages, June 2014
23 states; average % difference = 11.5%

Figure 2
Percent difference between state and federal minimum wages, June 2007
31 states; average % difference = 32.3%
0
10
20
30
40
50
60

MI ME MO NM AK DE AZ MT FL OH CO MA NY RI CA IL NV NJ DC CT VT OR WA
%

0
10
20
30
40
50
60

WVMD MN MT NV NC IA AR PA IL MO WI DE FL AZ ME CO OH MI DC AK NJ NY HI RI CA MA VT CT OR WA
%

FRBSF Economic Letter 2015-37 December 21, 2015

4
roughly 20.6% higher in 2014 than in 2007, compared with a 16.5% increase in average hourly earnings
over the same period. Thus, between the federal increases in 2007–09 and recent state increases, the
minimum wage has grown only slightly faster than average wages in the economy—around 4.1% over the
entire seven-year period.
From the research findings cited earlier, one can roughly translate these minimum wage increases into the
overall job count. Among the studies that find job loss effects, estimated employment elasticities of −0.1 to
−0.2 are at the lower range but are more defensible than the estimates of no employment effects. Some of
the larger estimates are from studies that are likely to receive more scrutiny in the future.
Using a −0.1 elasticity and applying it only to teenagers implies that higher minimum wages have reduced
employment opportunities by about 18,600 jobs. An elasticity of −0.2 doubles this number to around
37,300. If we instead use the larger 16–24 age group and apply the smaller elasticity to reflect that a
smaller share of this group is affected, the crude estimate of missing jobs rises to about 75,600. Moreover,
if some very low-skilled older adults also are affected (as suggested by Clemens and Wither 2014), the
number could easily be twice as high, although there is much less evidence on older workers.
Thus, allowing for the possibility of larger job loss effects, based on other studies, and possible job losses
among older low-skilled adults, a reasonable estimate based on the evidence is that current minimum
wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the
period just before the Great Recession. This is a small drop in aggregate employment that should be
weighed against increased earnings for still-employed workers because of higher minimum wages.
Moreover, weighing employment losses against wage gains raises the broader question of how the
minimum wage affects income inequality and poverty. This issue will be addressed in the next Economic
Letter.
David Neumark is Chancellor’s Professor of Economics and Director of the Center for Economics &
Public Policy at the University of California, Irvine, and a visiting scholar at the Federal Reserve
Bank of San Francisco.


The second Article is below: 

Reducing Poverty via Minimum Wages, Alternatives
BY DAVID NEUMARK
Setting a higher minimum wage seems like a natural way to help lift families out of poverty.
However, minimum wages target individual workers with low wages, rather than families with
low incomes. As a result, a large share of the higher income from minimum wages flows to
higher-income families. Other policies that directly address low family income, such as the
earned income tax credit, are more effective at reducing poverty.

Raising the minimum wage has become a popular proposal to combat rising inequality and persistent
poverty in the United States. Proponents argue that this policy could restore some modicum of fairness to
the U.S. labor market. Since the last federal minimum wage increase in 2009 to $7.25 per hour, 23 states
have raised their minimums above the federal level, and several cities have set or are considering
minimum wages as high as $15 an hour.
A higher minimum wage reduces the inequality of wages earned by workers (Neumark, Schweitzer, and
Wascher 2004). However, the merits of using this tool to reduce poverty depend on the extent to which
poor families benefit from the increased wages, other responses by employers, and whether alternative
policies would be more effective. This Letter discusses evidence on the effectiveness of the minimum wage
relative to and in combination with other policies, such as the earned income tax credit. It also touches on
other broader issues relevant to antipoverty policies, in particular whether a higher minimum wage
reduces dependence on other programs that benefit poor or low-income families.
Minimum wages and low family income

A single working adult with two children earning the federal minimum wage of $7.25 and working full-
time earns about $14,500 a year, well below the U.S. poverty threshold of $19,073 for a family of this size.

Numbers like these frequently underlie arguments to raise the minimum wage, citing either the hardship
or the unfairness of a full-time worker earning “below poverty” wages. Clearly, an increase in the minimum
wage has the potential to address this problem.
Deciding whether this is the most effective tool, however, is a good deal more complicated because
minimum wages address low-wage work, whereas poverty is based on family income. One complication is
research pointing to employment declines from minimum wage increases (see Neumark 2015), which
means raising wages for some people must be weighed against potential job losses for others. In this case,
whether a higher minimum wage on net helps poor and low-income families depends on the specific
pattern of employment effects for different family types.
A second complication is that mandating higher wages for low-wage workers does not necessarily do a
good job of delivering benefits to poor families. Of course, worker wages in low-income families are lower

FRBSF Economic Letter 2015-38 December 28, 2015

2
on average than in higher-income families. Nevertheless, the relationship between being a low-wage
worker and being in a low-income family is fairly weak, for three reasons. First, 57% of poor families with
heads of household ages 18–64 have no workers, based on 2014 data from the Current Population Survey
(CPS). Second, some workers are poor not because of low wages but because of low hours; for example,
CPS data show 46% of poor workers have hourly wages above $10.10, and 36% have hourly wages above
$12. And third, many low-wage workers, such as teens, are not in poor families (Lundstrom forthcoming).
Considering these factors, simple calculations suggest that a sizable share of the benefits from raising the
minimum wage would not go to poor families. In fact, if wages were simply raised to $10.10 with no
changes to the number of jobs or hours, only 18% of the total increase in incomes would go to poor
families, based on 2010–2014 data (Lundstrom forthcoming). The distributional effects look somewhat
better at a higher threshold for low income, with 49% of the benefits going to families that have incomes
below twice the poverty line. However, 32% would go to families with incomes at least three times the
poverty line. By this calculation, about a third of the benefits would go to families in the top half of the
income distribution.
Moreover, if we consider raising the minimum wage higher, for example to $12, only 15% of the benefits go
to poor families, because other higher-wage workers who would benefit are less likely to be poor. Likewise,
35% would go to families with incomes at least three times the poverty line. With a $15 minimum wage the
corresponding figures would be 12% and 38%. This evidence—coupled with the fact that employers who
would pay the higher minimum wage are not necessarily those with the highest incomes, but instead may
be owners of small businesses with low profit margins—indicates that minimum wages are a very
imprecise way to raise the relative incomes of the lowest-income families.
Do higher minimum wages reduce poverty?
The ineffective targeting of low-income families does not imply that higher minimum wages do not, on net,
help the poor. Instead, the implication is that, for every dollar of benefit to poor families, there is also a
large benefit to nonpoor families. This makes the minimum wage an inefficient redistributional policy.
Economists have studied how poverty rates change in states where the minimum wage is increased versus
states with no increase. The evidence is much sparser than the huge research literature on the changes to
employment from minimum wages (Neumark 2015). Although there are isolated exceptions in both
directions (see Neumark et al. 2005 and Dube 2013), the general conclusion from this literature is that
there is no statistically significant relationship between raising the minimum wage and reducing poverty
(see Neumark and Wascher 2008 and Sabia, Burkhauser, and Nguyen 2015).
However, the distributional effects may have improved. The efficiency of the minimum wage in reaching
its intended target has crept up slightly in the past decade, as a by-product of the unfortunate declines in
income among near-poor minimum wage workers (Lundstrom forthcoming).
Nonetheless, the evidence simply does not provide a strong case for using minimum wages to reduce
poverty. Similarly, recent research does not provide conclusive evidence that a higher minimum reduces
government spending on welfare and other programs to support poor families, with the possible exception
of food stamps (Sabia et al. 2015 and Reich and West 2015).

FRBSF Economic Letter 2015-38 December 28, 2015

3
The earned income tax credit
The minimum wage is not the only policy available to increase income from work. Since the 1970s, the
earned income tax credit (EITC) has offered a subsidy to earnings for low-income families, mainly those
with children. For example, under current federal EITC guidelines, families with two children receive a
40% subsidy to their labor market earnings, up to a maximum of $5,548, which phases out as incomes rise.
Many states also supplement this federal credit. Moreover, the EITC has become substantially more
generous over time. Since the EITC

expanded significantly in the mid-
1990s, the real value of the minimum

wage has declined; however, the real
value provided by the two policies
combined for families with children now
exceeds what the minimum wage alone
used to provide (Figure 1).
As might be expected, the EITC has
proven more effective at reducing
poverty than the minimum wage
(Neumark and Wascher 2011). First,
because the EITC is based on family
income and structure, it effectively
targets low-income families with higher
needs. Second, because the EITC
subsidizes labor market earnings, it
induces those most strongly affected, who tend to be single mothers, to enter the labor market—hence
boosting employment, in contrast to the minimum wage. Moreover, the EITC not only reduces poverty by
providing extra income, its pro-work incentives also increase the likelihood that families can earn their
way out of poverty even before receiving their EITC check.
This evidence, combined with what we know about minimum wages, suggests that the EITC is a much
more effective policy to combat poverty. To achieve further gains, it could be made more generous.
Moreover, because the EITC is financed by taxes, this redistribution can be financed by those with the
highest incomes, rather than by those who employ minimum wage workers, who do not necessarily earn
high incomes (see Mankiw 2014).
Some critics have argued that the EITC lowers wages, labeling it “corporate welfare” (Ritholtz 2013). From
the perspective of trying to increase employment, this argument is ill-founded: The EITC lowers labor
costs for employers, so eligible workers end up earning more per hour once the credit is factored in—which
is the reason labor supply increases. Nonetheless, the criticism is correct in the sense that the increasing
return to work that the EITC generates is in part offset by reduced wages, and the EITC does lead to lower
wages for some ineligible workers.
Finally, the minimum wage can complement the EITC (Neumark and Wascher 2011) by increasing work
incentives for women with children who face high work-related expenses like child care. In particular,
combining a higher minimum wage and a more generous EITC leads to larger poverty reductions for single
women with children. For example, Figure 2 shows that at the average minimum wage, a 10% higher EITC

Figure 1
Single-earner household incomes at minimum wage

Source: Tax Policy Center, Neumark (2013), and author’s
calculations. Income for working 2,000 hours, in 2012 dollars.
10
12
14
16
18
20
22

76 80 84 88 92 96 00 04 08 12
Thousands (2012$)

Earnings
Earnings+EITC

FRBSF Economic Letter 2015-38 December 28, 2015

4
phase-in rate leads to an estimated 1.6
percentage point decline in poverty.
However, that same 10% higher EITC
phase-in rate reduces poverty by 3.4
percentage points when combined with
a minimum wage that is 25% higher.
Although this combination leads to
more adverse employment effects than

either policy in isolation for EITC-
ineligible groups like teenagers and less-
skilled minority men, the effects across

the income distribution remain
favorable.
Conclusion
Raising the minimum wage will
certainly benefit some workers and has
the appeal of greater fairness.
However, minimum wages represent a cost to businesses, consumers, and other workers who may face
fewer job opportunities. Therefore, it is important to ask how well the benefits are targeted on the poor and
low-income families the policy is intended to help. Because minimum wages focus on low worker wages
and not low family incomes—and because these two conditions are only weakly related—the targeting of
minimum wages is imprecise: Few of the benefits are likely to flow to poor families, and some go to quite
high-income families. Perhaps reflecting this problem, there is little evidence that higher minimum wages

alone reduce poverty or dependence on government programs. The earned income tax credit targets low-
income families much better, increases employment, and reduces poverty, and for all these reasons seems

far more effective. Policymakers are likely to do a better job fighting poverty by making the EITC more
generous than by raising the minimum wage. Furthermore, using both of these policies together is more
effective than minimum wage increases in isolation.
David Neumark is Chancellor’s Professor of Economics and Director of the Center for Economics &
Public Policy at the University of California, Irvine, and a visiting scholar at the Federal Reserve
Bank of San Francisco.