The minimum wage is one of the most studied topics in economics, and over the last two decades, the majority of research has found that a moderate increase in the minimum wage does not lead to discernible reduction in employment. Instead, the higher cost of labor reaps rewards for businesses in higher productivity of workers, lower turnover, and increased spending, which cycles back to their businesses.
Opponents of a minimum wage increase often repeat an argument that the higher labor costs will lead to employment reductions, but since the 1994 study of David Card and Alan Krueger on the fast-food industry in New Jersey and Pennsylvania, that job loss myth has been refuted time and again by academic studies.
There are many studies, so highlighted are a couple “meta-studies” that review other research:
Schmitt conducted an extensive review of the last decade of research on the minimum wage. He concludes that almost all the studies show little or no employment loss. He attributes the small impact that to the fact that other adjustments are made in areas such as productivity and efficiency that absorb the wage costs. As stated in his report: “Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.”
One of the most rigorous studies on the on-the-ground impact of minimum wage increases across the country over the last decade, the authors analyze employment and earnings data from over 500 counties in the U.S., controlling for other economic factors affecting local labor markets in order to isolate the effect of the higher minimum wage levels. The study shows that higher minimum wages did not reduce employment. As stated: “For cross-state contiguous counties, we find strong earnings effects and no employment effects of minimum wage increases.”
Many low-wage employers are big businesses such as national retailers and quick-service food chains, which have the ability to absorb the increased labor costs. There is a common concern that these quantities of scale do not apply to our small businesses, which can be a foundation of our neighborhoods and commercial corridors.
Consistently, surveys done by the National Federation of Independent Business — a national group representing small business — show that labor costs are one of the smaller concerns. In its recent October trends report, only 5 percent of businesses cited labor costs as a big problem, whereas red tape and government bureaucracy, taxes, and sales ranked in the top three.