Is there conclusive data, easily presented, that correlates minimum wage in the United States with total compensation paid out, adjusted for inflation?
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I'm trying to reach a data point that clearly shows the impact of the raises in minimum wage on the benefit (or cost) to the American public and economy. We often debate how minimum wage increases cause small businesses to reduce headcount. The other side counters that as the economy adjusts, employers still need as many people working. Which is then countered with the idea that if the economy adjusts to accommodate a different minimum wage, doesn't everything simply inflate to keep the income earned at the, effective, same place. Back and forth, back and forth. IF minimum wage increases the total compensation paid out to working Americans, the total compensation would increase, adjusted for inflation. IF instead, minimum wage increases result in layoffs and/or inflation as businesses raise prices to cover increased costs, total compensation paid out would be flat, or decline. No? Is there a study that shows the correlation between those two data points?
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Answer:
I like the spirit of the question, that you're asking it without seeking/assuming a specific answer (sadly this is rarely done by economists themselves). The logic is good too. The variable that makes minimum wage impacts really hard to measure (and why it makes great ammo for spin doctors) is time. It would certainly affect different industries at different rates in the "short term" and be balanced out by inflation in the "long term" (this would not happen if min. wage were pegged to inflation btw, as some advocate for). Also, the economy of today (pre-Internet, pre-WTO, less automating tech) is very different from the economy of say 50 years ago, so would the historical correlation you seek even be representative of the present economy? As such, this is a very difficult question to answer with econometrics if you are actually truth-seeking, but it's very easy to cherry pick evidence to build a case for your side. Hence there's no "conclusive" statistical answer on minimum wage impacts, both tribes think they're right. I think in something as statistically garbled as this it may be better to rely on pure reasoning. One thing is for sure, at least in the short term, labor will/is becoming more expensive for companies, which will mean either labor cuts or taking a hit to the bottom line. This leads directly to a competitive advantage for competitors with more automated business models. Amazon should write the DNC a thank you note for raising its edge against Wal-Mart (did I mention, Amazon provides fewer jobs?).
Roger Beaman at Quora Visit the source
Other answers
Schmidt, J. Why Does the Minimum Wage Have No Discernible Effect on Employment? 2013 That is a survey of previous studies, listing about 50 additional sources. I am sure you can find material in there if you are looking to make a specific point. Advanced economic models are constructed out of systems of partial differential equations often containing dozens of constants, describing factors like inflation, debt, cost of living, sunk costs, etc. The conclusions depend heavily on those constants, so its common for two economists to use exactly the same models but come to entirely different conclusions.
Jeff Nelson
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