Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers | The White House

I couldn’t understand why the CBO estimated job losses with a minimum wage hike. It’s because they seemed determine to ignore the literature on the subject:

6. CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists. The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent. CBO also agrees that the employment effect could be essentially zero, but their central estimates are not reflective of a consensus of the economics profession. Specifically:

• Seven Nobel Prize Winners, eight former Presidents of the American Economic Association and over 600 other economists recently summarized the literature on the employment effects of the minimum wage in this way: “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”
• The pioneering research in this area was conducted by John Bates Clark Medal winner David Card and Alan Krueger, who published a study in the American Economic Review in 1994 finding that fast food restaurants in New Jersey did not cut back employment relative to Pennsylvania after the former State raised its minimum wage. They concluded, “We find no indication that the rise in the minimum wage reduced employment.”
• The Card-Krueger research was generalized by Arindrajit Dube, T. William Lester, and Michael Reich who compared 288 pairs of contiguous U.S. counties with minimum wage differentials from 1990 to 2006. Based on this, researchers found “no adverse employment effects” from a minimum wage increase.
• A recent literature review of the extensive published work on the minimum wage concluded: “[W]ith 64 studies containing approximately 1,500 estimates, we have reason to believe that if there is some adverse employment effect from minimum-wage raises, it must be of a small and policy-irrelevant magnitude.”
• Another recent review of the theory and evidence on the minimum wage by John Schmitt at the Center for Economic Policy Research concluded that “The employment effects of the minimum wage are one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.”

Overall the logic for the finding that raising the minimum wage does not result in large adverse impacts on employment is that paying workers a better wage can improve productivity and thereby reduce unit labor costs. These adjustments, along with others that firms can make, help explain why the increase in the minimum wage need not lead to a reduction in employment. Higher wages lead to lower turnover, reducing the amount employers must spend recruiting and training new employees. Paying workers more can also improve motivation, morale, focus, and health, all of which can make workers more productive. In addition, by reducing absenteeism, higher wages can increase the productivity of coworkers who depend on each other or work in teams. In addition, businesses can adjust in other ways rather than reducing employment (for example, by accepting lower profit margins).  CBO’s estimates do not appear to fully reflect the increased emphasis on all of these factors from the recent economics literature.

Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers | The White House

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