A minimum wage increase remains on the Arkansas ballot this year, despite a lawsuit by the Arkansas State Chamber of Commerce. That’s good news for Arkansas. The chamber and other conservative groups are still trying to scare voters away from voting for their self-interest and what is best for the Arkansas economy. They say a higher minimum wage will destroy jobs.
Well, it’s nearly Halloween. Sky-is-falling claims about the minimum wage have long been debunked by actual economics research. Several highly regarded, cross-border, quasi-experimental studies have investigated the effects when one state raised its minimum wage and a neighboring state did not. None found any evidence of employment declines.
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For example, in 2015, when Alberta began increasing its minimum wage, the Canadian Federation of Independent Businesses claimed that doing so would cost them “between 53,500 and 195,000 jobs.” Reality calling! Instead, 25,000 low-wage jobs were created in Alberta from 2015 to 2017, during which the Canadian province’s minimum wage increased by 33 percent. This same experience has been found in dozens of U.S. states and cities.
Issue 5, the Arkansas proposal, would gradually raise the state’s minimum wage from $8.50 to $11 over a three-year period. It would rise to $9.25 in 2019, then $10 in 2020 and $11 in 2021. The group campaigning to pass Issue 5 says it would benefit over 300,000 Arkansans.
My own work as an economist concerns meta-analysis, or research on research. Meta-analyses are comprehensive analyses of all research on a given subject — for example, the therapeutic effects of antidepressants, the health risks of second-hand smoke and thousands of other critical health and policy issues. Meta-analysis is widely seen as the foundation of evidence-based practice in medicine, health, education
Nearly a decade ago, Chris Doucouliagos and I published a comprehensive meta-analysis of all research about the minimum wage’s effect in the U.S. We looked at 64 studies containing nearly 1,500 assessments of the minimum wage’s effect on employment. The best research found almost zero effect. The resounding message was that “if there is some adverse employment effect from minimum-wage raises, it must be of a small and policy-irrelevant magnitude.” These findings were independently verified by two different research teams:
Yes, our findings went against the simplistic claims made in Economics 101 — which I taught for several decades at Hendrix College — and fearmongering from conservative business groups. Econ 101 assumes there is a downward slope to the demand for workers. According to this simplistic story, moving up and along this curve by raising the minimum wage reduces employment because employers can no longer afford their entire workforce.
This thinking makes sense when we are talking about the demand for a bushel of soybeans or a bale of cotton. It makes sense when there are countless potential buyers and sellers with no notable control over the market. However, employers do have substantial control; they can largely dictate the wages they wish to pay. Notice how slow wages have been to rise after a decade of economic expansion in the U.S. In these less-than-perfectly-competitive conditions, there is no downward slope to the demand for labor, and the job-loss claims of Econ 101 lose their sting.
A separate meta-analysis of the efficiency-wage hypothesis, or EWH, provides further evidence in debunking the scary story of lost jobs. EWH is the idea that paying workers higher wages will induce greater productivity. It’s the opposite of the old Soviet workers’ joke: “They pretend to pay us, and we pretend to work.” EWH says that when we pay workers well, they work harder.
This is a lesson that Henry Ford knew well. “We wanted to pay these wages [$5 per day] so that the business would be on a lasting foundation,” he once wrote. “A low wage business is always insecure.”
Ford proved a century ago that when low-wage workers are paid better, they spend more money and buy more Fords. The entire economy benefits, including the wealthy. And, raising the minimum wage offers immediate, clear benefits to low-wage workers, especially those who are below or near the poverty line. With an estimated 500,000 residents living in poverty, Arkansas needs Issue 5
Tom Stanley is