Debunking the CEPR report on minimum wage

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A recent “study” released by the Center for Economic Policy Research (CEPR) attempts to debunk the claim by many economists that increasing the minimum wage harms job growth. The analysis states, “At the beginning of 2014, 13 states increased their minimum wage. Of these 13 states, four passed legislation raising their minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, their minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington state).
The baseline is the average of the employment figures for the last five months of 2013 (August to December), which is measured against the average of the employment levels for the first five months of 2014 (January to May). As was the case with [an] earlier analyses by [Goldman Sachs] and CEPR, employment growth is still faster in states where the minimum wage went up.”

For a number of reasons, this is not an accurate study. Mainly, the baseline and the test months are not comparable, as the baseline fails to account for seasonal job growth. A more accurate comparison would have looked at the first 5 months of 2013 instead of the last 5 months of that year.

The study also fails to account for the percentage increase in the wage, the number of added jobs that earn minimum wage, as well as the number of jobs that weren’t created due to the increased wage. Admittedly, the latter is incalculable, and is the unseen portion of the economy.

Frederic Bastiat wrote about this in the Parable of the Broken Window. If a store owner finds one of his windows broken, then he must pay to have the window replaced. The seen portion of the economy shows us that the glass company has earned money, which allows them to continue operation, and puts food on the table of the window repairman, and the store owner is out the cost of the window, but has no additional value to his store; he is at a net loss. Bastiat wrote, “It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.”

It seems obvious to me, based on the parties that released these results that the intention is to attempt to convince people that a higher minimum wage is not only needed, but also a good thing. Whenever I encounter someone promoting an increased minimum wage, I feel compelled to ask the question: “If a $10/hour minimum wage is good, why not a $100/hour wage, or even a $1million/hour wage?”