A minimum wage increase would regressively impact low-income households---the most vulnerable workers get fired

The authors allege that "it is doubtful whether there is any more important condition of individual and general well being than the possibility of obtaining an income sufficient to enable those who earn it [*57] to secure … the necessaries of life." 261 This thesis is both presumptive and credulous: presumptive because the authors' claim assumes facts not in evidence, 262 and credulous because they seem to have been misled by their own presumptions. The pertinent question becomes whether low wage beneficiaries of minimum wage regimes are actually poor or, alternatively put, whether they receive the benefits that minimum wage advocates allege. To answer such questions, it is important to appreciate that not every worker within a family needs to earn a sufficiently high wage in order to secure all of the necessaries of life since family members may cross-subsidize one another for a variety of reasons. 263 Contrary to Deakin and Wilkinson's supple claims, the legal and economics literature shows that most of the actual (as opposed to theoretical) beneficiaries of wage minimums in the United States do not live in low-income households, nor are they the primary breadwinners for their families. 264 Thus, it is easy to see why neoclassical economics "is hostile to minimum wage legislation and to labour standards more generally, seeing them as an unwarranted interference with the operation of the market and a cause of unemployment" and human misery. 265 Furthermore, these results may be reinforced by regressive distributional consequences. While it is important to note that poverty includes more than economic considerations, which imply that minimum wages or earned-income tax credits cannot alleviate all forms of impoverishment, 266 it is also worth noting that "neoclassical competitive models of firm behavior predict that wage increases reduce the quantity of labor demanded by firms and … that the least valued workers are the first fired or the last hired." 267

Since adducible data shows that the primary beneficiaries of wage- [*58] rate minima are not necessarily members of poor households, 268 two observations emerge. First, such data is consistent with the orthodox economics consensus suggesting that marginalized workers (and not teenagers or young adults) living in middle-class or upper-middle-class families are placed within the crosshairs by ongoing attempts to raise wage minima. Second, and equally important, if the primary beneficiaries are members of relatively affluent families, it is doubtful that Deakin and Wilkinson's objective of providing a living wage to workers is achievable through statutory wage regulation, notwithstanding the existence of some data that shows that living wage ordinances, in contradistinction to minimum wage increases, may help to achieve modest reductions in urban poverty, despite their strong negative effect on employment. 269

B. Revisiting the Empirical Record

Central to Deakin and Wilkinson's thesis is the observation that modest increases to the minimum wage have no employment effects or, alternatively, positive ones. 270 If this is true,

The appropriateness of this method in helping the working poor is strictly a distributional issue. However, if minimum wage increases reduce employment and if the jobs lost are concentrated among the vulnerable groups the policy claims to assist, then policy makers must consider this unintended consequence. Hence, estimating the elasticity of employment with respect to minimum wage increases is more than simply an empirical test of economic theory. 271

Deakin and Wilkinson's central and correlative claims noticeably overlook an enormous amount of contrary minimum wage research. 272 [*59] Leading minimum wage scholars Neumark and Wascher have built upon more than twenty years of original research to author a book 273 and numerous other studies that, taken together, dispute many of Deakin and Wilkinson's claims.

As they summarize the theoretical models of minimum wage effects on employment, Neumark and Wascher admit that "the neoclassical model does not predict that an increase in the minimum wage will reduce employment in every instance." 274 They also concede that scholars have disagreed about the disemployment effects of wage minimums ever since Card and Krueger's early claims contesting the neoclassical consensus view that emerged in the early 1990s. 275 However, it is clear that Neumark and Wascher's examination of early evidence, 276 of the lagged effects of minimum wages, 277 of evidence associated with employment and school enrollment, 278 of aggregate effects and trend differences in the state-level panel data approach, 279 of data from industrialized countries 280 (including data from the United Kingdom substantiating the disemployment effects of wage regulation), 281 of studies from developing countries, 282 and of the overall evidence point to one conclusion: "The literature- when read broadly and critically- [solidifies] the view that minimum wages reduce employment of low-skilled workers, and … [suggests] that the low-wage labor market can be reasonably approximated by the neoclassical competitive model." 283

Indeed, as Burkhauser and his colleagues show, the elasticity of demand for labor with respect to increases in the minimum wage is [*60] greatest for the most vulnerable groups in the working-age population: young adults with low levels of education, young black adults and teens, and all teenagers. 284 Although,

The new minimum wage literature is dominated by studies that find that minimum wage increases have an insignificant or, in some cases, a positive and significant effect on the employment of young adults and teenagers (aged 16-24) or on other subgroups … . Most of these studies have now generated replies arguing that raising the minimum wage significantly decreases employment in these populations. 285

Research shows that one could expect a 10% increase in the wage minimum to result in a 5.66% decline in teenage employment. 286 Furthermore, the estimated elasticity of employment with respect to the minimum wage for black young adults and teenagers was more than four times the elasticity for nonblack young adults and teenagers. 287 This body of research reconfirms the neoclassical consensus, which forecasts that the most vulnerable are the ones most adversely affected by the establishment of wage minimums. 288 Even so, Neumark and Wascher rightly concede that the effect of wage regulation on employment is only one factor in evaluating the efficacy of minimum wage regimes as a tool to improve the economic position of those at the bottom of the income distribution. 289

Supplying one of the most comprehensive sets of analyses available, Neumark and Wascher examine minimum wage effects on the distribution of wages and earnings:

Given the evidence that minimum wages create spikes in the wage distribution at the minimum, as well as the evidence of spillover effects on wages higher up in the distribution, it was only natural for economists to explore the role of minimum wages in the trend towards greater inequality in U.S. wages … . 290

In response, their research indicates:

Higher minimum wages tend, on average, to reduce the economic [*61] well-being of affected workers. Evidence regarding the effects on workers initially paid at or just above the minimum suggests that their labor income declines as a result of minimum wage increases, reflecting negative effects of minimum wages on employment and hours. For workers earning above the minimum, such effects do not accord well with the simple neoclassical model, in which a higher minimum wage increases demand for more-skilled workers. Instead, [the effects] may reflect a desire among employers to maintain wage differentials between workers, so that a higher minimum wage puts upward pressure on other wages, amounting to cost increases. 291

Turning next to complex issues regarding the effects of minimum wages on the distribution of income, Neumark and Wascher confirm that many minimum wage workers are not members of poor families, making it more difficult for lower-income families to feel the beneficial distributional effects of minimum wages. 292 Although it is possible that wage minimums could reduce employment (a view supported by the evidence), it is equally possible that minimum wages could have overall benefits on poor families. 293 Despite these contrasting possibilities, "the research tends to find either no evidence of distributional effects or evidence that minimum wages increase poverty." 294

Enhanced by reference to their own original research, which has withstood academic scrutiny, Neumark and Wascher's wide-ranging analysis of minimum wage research supports two important conclusions. First, higher minimums "impose costs on low-skilled workers and low-income families without delivering benefits that offset these costs." 295 Second, and in direct contrast to Deakin and Wilkinson's line of reasoning, the results "indicate that reductions in minimum wages would yield net benefits." 296 On a more hypothetical level, Neumark and Wascher "are skeptical that eliminating the minimum wage would, as non-economists sometimes argue, lead to a widespread decline in wages to subsistence levels." 297 These observations dispute Deakin and Wilkinson's fundamental claim that minimum wage regimes are justified [*62] by the goal of eliminating subsistence. 298 Additionally, Neumark and Wascher "wonder whether eliminating the minimum wage might improve conditions of our nation's most blighted and depressed urban areas, where one can hardly argue that polices adopted so far have been successful." 299 If Neumark and Wascher are correct, then Deakin and Wilkinson's thesis that minimum wages necessarily help the poor is dubious.

Finally, since Deakin and Wilkinson rely so heavily on the work of Card and Krueger ("CK"), 300 a few words about the deficiencies of this research is useful. Scholars backed by rich original and comparative research have questioned the validity of CK's claims for a number of reasons. 301 Although it has been argued that CK's study, which relies on telephone survey data, is the result of the "most sophisticated techniques available to economists," 302 there is little reason to believe "that [CK's] methodology is superior to more conventional forms of economic analysis." 303 Scholars who inspected state employment by reviewing actual payroll records, as opposed to CK's preferred survey approach, found that an increase in wage minimums inevitably led to a decrease in employment. 304 Although proof of cause and effect may be difficult since Deakin and Wilkinson rely heavily on CK's largely-refuted analysis, it can be safely assumed that the authors have failed to validate their claims. However, if Deakin and Wilkinson's contention that economic analysis fails to provide clear normative guidance to policy makers 305 were to be momentarily accepted, it would become important to reexamine the aspirations, assumptions, goals, and objectives of minimum wage proponents from a historical perspective that is fully cognizant of the immediate consequences of implementing progressive [*63] labor ideology. This is the subject to which I now turn.