How did CEPR claim states with raised minimum wages had employment growth?

THE MISLEADING CLAIM: “The 13 states that raised their minimum wage at the beginning of 2014 saw employment increase by 45% more than the 37 states that didn’t raise their minimum wage.”

REALITY: The cited study  does make this claim. How they reach it, however, is much different than what is presented. From CEPR, “Of these 13 states, four passed legislation raising their minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, their minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington State).”

See what happened? Only FOUR of the 13 states increased minimum wage via new legislation, but this meme implies all 13 states instituted effective minimum wage increases. Of those four, three performed BELOW the median employment increases. New Jersey, a state with a legislated minimum wage increase, had the largest drop in employment. The other NINE states indexed their minimum wage to inflation – which is based on current law. For those four, the average employment increased 0.34% – compared to the 0.99% of the original 13 and 0.68% of the remaining 37.

Regardless of how you accept their evaluation, CEPR says, “While this kind of simple exercise can’t establish causality, it does provide evidence against theoretical negative employment effects of minimum-wage increases.”

In other words, what is admitted as non-causal and not based in policy outcomes has been presented as a reality. Why else might minimum wage have negligible employment effects? Minimum wage does not always affect total employment levels for a couple reasons.

The minimum wage ultimately affects a small portion of the workforce. As WAC has discussed in detail before, minimum wages do not just affect aggregate employment. It can often come at the expense of reduced benefits and smaller pay raises. Because it affects such a small portion of labor, we do not see the effects in short term aggregate statistics – especially with a modest increase.

Moreover, negative minimum wage outcomes are negligible in areas where the prevailing wage is already equal to or greater than the new minimum. In other words, if the prevailing wage is $20 an hour and the new minimum wage is $15, the employment losses would be unnoticeable in aggregate statistics. Workers already paid higher than the new price floor remained unaffected.

For example, New York City recently raised their minimum wage to $15 an hour. Their “total employment” still increased because of prevailing wages. To give you an idea, elevator operators make $23.89 an hour and movers earn $18. Thus, a new minimum wage LESS than prevailing wages will not significantly affect total employment.

For these reasons, CEPR cannot establish causality from aggregate statistics. The original meme is misleading because it poorly evaluates their source and only partially presents what was found.

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