Does raising the minimum wage cost jobs? What economists actually find

Economists have not settled whether raising the minimum wage costs jobs, and the honest answer is: it depends on how big the rise is and what the local job market looks like. The classic textbook model says a minimum wage is a price floor on labour, so a higher floor means fewer people hired, especially low-skilled ones. But when employers have some power to set wages, a modest minimum wage can raise employment instead.

For a long time the textbook view dominated. In 1978, 90 percent of surveyed economists agreed that the minimum wage increases unemployment among low-skilled workers. Then, in 1992, New Jersey raised its minimum wage from 4.25 to 5.05 dollars an hour while neighbouring Pennsylvania did not. Economists David Card and Alan Krueger, who wanted natural experiments that could give stronger evidence, surveyed fast-food restaurants on both sides of the border. They concluded that the rise slightly increased employment in New Jersey's restaurants.

That finding did not end the argument. In 1996, David Neumark and William Wascher used payroll records from large fast-food chains and reported that minimum wage rises led to decreases in employment. Later work found different effects for small restaurants and large chains. Meta-analyses that combine many studies disagree too: a 2007 one found a consistent, though not always significant, negative effect, while a 2019 one of developed countries reported minimal employment effects.

By the 2000 survey, 74 percent of economists agreed with the old statement in full or with provisos, down from 90 percent. As one 2021 assessment put it, there is no consensus on the employment effects of the minimum wage. This lesson reports the evidence and takes no side on what a minimum wage should be.