Economic conservatives have long held that raising the minimum wage is a surefire recipe for job destruction. Any mandated increase in labor costs, the argument goes, will cause employers to slash jobs and hours to protect their bottom line. Faced with having to pay workers more, businesses will be forced to lay people off, raise prices, or shutter completely.
The result: fewer job opportunities for the low-wage workers who need them most.
It’s a tidy, gut-feeling story. But a story is all it is.
Because study after study examining real-world minimum wage hikes has failed to find the massive job losses confidently predicted by textbook economic models. While some analyses do find small disemployment effects, they are not nearly at the catastrophic scale minimum wage skeptics suggest.
Take the landmark 1992 study by economists David Card and Alan Krueger comparing employment in fast food restaurants across the New Jersey-Pennsylvania border after New Jersey raised its minimum wage. Pennsylvania, which kept its wage floor unchanged, should have seen much faster job growth according to the conventional models. Instead, there was no discernible difference in hiring between the two states. The doomsday predictions never materialized.
Since then, a large body of research has reached similar conclusions. A 2009 meta-analysis reviewing 64 U.S. minimum wage studies found that, after correcting for publication bias, the job impacts clustered around zero. A 2021 review examining over fifty years of minimum wage research found mixed evidence, with many studies showing negative employment effects, particularly for teens, young adults, and less-educated workers, but less consistent evidence in low-wage industries.
Hiking the minimum wage puts more money in the pockets of low-income workers who tend to immediately spend it, generating a stimulus effect. That additional consumer demand helps spur job growth, counteracting potential losses.
Higher wages make jobs more attractive, allowing businesses to fill vacancies faster and retain workers longer. That reduces the costly turnover that eats into companies’ profits. A study of San Francisco airport workers found that annual turnover plunged from 95% to just 19% when their hourly wage jumped from $6.45 to $10. Suddenly, those jobs were worth keeping.
Companies can adjust to higher labor costs in ways other than cutting jobs. They can allocate the costs across all their stakeholders rather than putting the entire burden on workers. If that means accepting a slightly lower profit margin, raising prices modestly, or improving productivity, so be it. After all, Walmart and McDonald’s are still in business in high minimum wage areas.
Not every business is operating on a razor thin margin with no room to absorb higher wages. In fact, many low-wage employers like retailers and fast food chains are actually quite profitable. They can afford to pay more; they just choose not to when they can get away with paying poverty wages.
That’s why more than half of all minimum wage workers need public assistance to get by — taxpayers are effectively subsidizing hugely profitable companies.
No one is suggesting we could raise the minimum wage to $100 an hour with no effect on employment.
There is some level where job losses would become pronounced.
But the United States is nowhere near that point.
The federal minimum wage has been stuck at $7.25 since 2009 — a poverty wage in much of the country that has badly eroded with inflation. Phasing in a $15 national minimum wage by 2025 would lift pay for over 25% of the workforce, benefiting 17 million workers directly and potentially another 10 million indirectly. It would lift 900,000 people out of poverty, though it could reduce employment by approximately 1.4 million jobs, or about 0.9% of the workforce. A Florida McDonald’s paying $8.56 an hour won’t go out of business if that rises to $10 or $12 over several years, as modest, incremental increases in the minimum wage do not lead to significant job losses and can be absorbed by businesses through various adjustments.
Those confidently asserting the opposite tend to rely on oversimplified Econ 101 models of the labor market. They treat it as a basic commodity, ignoring that workers are human beings, not just a cost of production. But decades of empirical research indicates that labor markets in the real world are far more complex.
Efficiency wage theory, for instance, suggests that paying above the market-clearing price can make economic sense by boosting productivity and reducing turnover. That explains why companies like Costco choose a ‘good jobs’ business model of higher wages over the ‘bad jobs’ model of competitors like Sam’s Club.
The argument that lifting the wage floor will inevitably lead to mass unemployment rests on textbook theories that don’t match the data. Real-world evidence of the benefits of higher minimum wages is why, when surveyed, the majority of professional economists now agree that the benefits outweigh the costs.
The next time you hear someone confidently predict that a minimum wage hike will unleash economic armageddon, check what actually happened in the places that raised theirs.
San Francisco, Seattle, and New York City, which are already at or above $15 an hour, have some of the strongest economies in the country. When Britain introduced a national minimum wage in 1999, critics warned that “unemployment [would] immediately rise by anything between 100,000 and one million.”
The minimum wage debate shows just how many people are clinging to oversimplified models and ignoring real-world evidence in favour of what is little more than an economic ideology.
Psychologists call it motivated reasoning — we believe what we want to believe. For those religiously opposed to the minimum wage, no evidence will convince them otherwise.
But for policymakers, what matters is what actually happens when the minimum wage rises, not abstract theories. And the track record is clear: modest minimum wage increases do not cause substantial job losses.
Anyone still insisting otherwise in the face of decades of data is economically fucking illiterate.
