Building an Economy that Works for Everyone

Evidence for broad benefits of minimum wage laws

In the ongoing discussion over minimum wage laws, proponents say such policies provide a minimum safety net for workers and guarantee an honest day’s pay for an honest day’s work. Opponents often argue that a wage floor depresses demand for workers, creates higher unemployment, and even puts companies out of business.

There’s new evidence to suggests the opposition’s gloom and doom scenario doesn’t hold water. Economist’s View notes that a new paper published by the National Bureau of Economic Research:

…finds evidence the minimum wage transfers income from owners to workers (i.e. that it reduces profit and increases wages) but it does not change the probability of a firm going out of business, and it does not reduce employment.

Thus, this paper raises the possibility that an increase in the minimum wage reduces inequality without having much of an impact on aggregate activity or employment.

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