Understanding Minimum Wage Mandates: Empirical Studies Aren't Enough

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President Joe Biden has promised to raise the minimum wage from $7.25 to $15 per hour. 

Some economists are of the view that the increase in the minimum wage could cause an increase in unemployment. Other economists think that the increase is unlikely to harm the labor market. Hence, they are of the view that raising the minimum wage could lift the workers' living standards. 

For example, in a study conducted in the 1990s, economists David Card and Alan Krueger examined a minimum wage rise in New Jersey by comparing fast-food restaurants there and in an adjacent part of Pennsylvania.1 They found no impact on employment.

Based on this study, many mainstream economists have pressed for an increase in the minimum wage, which they hold is going to raise workers' living standards.

In a recent study, the National Bureau of Economic Research (NBER) surveyed a body of economic research on minimum wage increases and rebutted the notion that empirical data show no impact from minimum wage hikes. The authors find that in all the available research on the subject they reviewed, there is a “clear preponderance” of findings that show a job-killing impact.

The documentation of job losses is even more pronounced for teenagers, young adults, and the less educated. “The body of evidence and its conclusions point strongly toward negative effects of minimum wages on employment of less-skilled workers, especially for the types of studies that would be expected to reveal these negative employment effects most clearly,” economists David Neumark and Peter Shirley wrote.2

Given the contradictory results, is there an alternative approach to decide whether the increase in the minimum wage will result in an increase or reduction in employment?

Can Historical Data Tell Us How the Economy Works?

Note that the so-called data that analysts are looking at is a display of historical information.

According to Ludwig von Mises in Human Action (pp. 41-49),

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