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.