New Research Debunks One of the Biggest Arguments Against Raising the Minimum Wage

by 
from Pacific Standard

The United States is currently in the middle of a grand experiment in wages. On January 1, 14 states officially raised their minimum wages, 12 of which did so through legislative action as opposed to an automatic adjustment. With minimum wage advocates making major gains in state legislatures in 2015, the tweaks that went into effect on New Year’s Day seem designed to answer the question: Will raising the minimum wage actually kill jobs?

That’s the argument among opponents of wage increases, who assert that an artificial floor will squeeze out more low-income workers than it helps. Restaurant workers are particularly susceptible due to their status as “subminimum wage” workers who customarily receive tips. When Los Angelesbecame the largest city in the country to phase in a $15 minimum wage through 2015, it was restaurant industry representatives who hinted that the public would have to deal with major price increases to compensate employees without firing them.

That anxiety seems like little more than political blustering: A new report by economists at the Cornell University Center for Hospitality Research suggests that past minimum wage increases have not negatively affected the restaurant industry.

“[The] relatively modest mandated increases in employees’ regular and tipped minimum wages in the past twenty years have not had large or reliable effects on the number of restaurant establishments or restaurant industry employment levels, although those increases have raised restaurant industry wages overall,”explain Cornell’s Michael Lynn and Christopher Boone. “Even when restaurants have raised prices in response to wage increases, those price increases do not appear to have decreased demand or profitability enough to sizably or reliably decrease either the number of restaurant establishments or the number of their employees.”

For their report, Lynn and Boone examined the impact of state-level minimum wage increases on the restaurant industry from 1995 to 2014. They also included a meta-analysis of existing research on minimum wage hikes, in an effort to create a clear but intricate portrait of America’s dining ecosystem, from restaurant employees all the way up to food and beverage firms. Lynn and Boone found that full-service restaurants (i.e. sit-down spots) not only increased payrolls following minimum wage increases, but employment and the number of establishments was left unaffected (outside of other mitigating factors, like incompetent management). The same held true for limited-service restaurants. In both cases, increases in the regular and tipped minimum wages “had no reliable linear effect on the number of full-service restaurants or on full-service restaurant employment, even when looking at cumulative effects over three years,” Lynn and Boone explain.

This isn’t to say that increasing the minimum wage doesn’t affect employment in general. As I wrote when Los Angeles adopted its $15 rate, a 2014 Congressional Budget Office report found that hiking the federal minimum wage to $10.10 (a plan proposed by President Obama in his State of the Union address that year) would kill some 500,000 jobs nationally; even a smaller wage hike to $9 would still kill some 100,000 jobs. But at the same time, an analysis from the Center for Economic and Policy Research found 12 of the 13 states that increased their minimum wage in January 2014 were still experiencing employment growth.

How to explain this discrepancy? Lynn and Boone write that there’s evidence the negative effects of wage hikes are “an artifact of chance coupled with publication bias against positive effects” or are confounded by regional differences in economic and political variables that are unlikely to be affected by the minimum wage.” Labor economists see the post-hike employment fluctuations as an econometric certainty; for Lynn and Boone, it’s exigencies and political obstinance that are to blame.

They may not be wrong. As previous research around Los Angeles’ wage increases suggests, it’s employers’ inability to create “channels of adjustment” and pivot their business models accordingly to account for the sudden change in cost structure—and that’s not always a purely financial decision. Lynn and Boone point out that high minimum wage states are more Democratic-leaning and more unionized, suggesting that businesses are more politically primed to make the appropriate adjustments. High minimum wage states also experienced “sharper growth in upper-half wage inequality and sharper job recessions,” a variable that affects low-wage employment, “thereby creating an artificial negative relationship between minimum wages and employment,” Lynn and Boone argue. Low-wage jobs are so insecure that it’s near impossible to disentangle the economic turbulence employees face.

This new research, while vindication for minimum wage advocates, only underscores the difficulty of analyzing and legislating the impact of a higher wage. But chances are research like Lynn and Boone’s, by kneecapping a key argument of the opposition, will give groups like the Fight for 15 the political ammo they need to push for more legislative changes in coming years—and, in turn, continue America’s grand experiment.

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