Resolved: Minimum wage laws benefit the United States economy.

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Minimum-Wage_0

Today, more than 65 years after Stigler’s (1946) classic analysis, the magnitude of the impact of minimum wages on employment remains a hotly debated topic in policy and academic circles. By the 1980s, a clear consensus had developed that increases in the minimum wage rate had statistically significant but economically modest effects (Brown, Gilroy, and Kohen 1982; Brown 1988). Since then, as the use of micro data became more popular, a large body of research has provided conflicting evidence regarding the impact of minimum wages on employment. While some research supports the neoclassical view that minimum wages substantially reduce employment, (Neumark and Wascher (1992, 1995, 2000), Deere, Murphy and Welch (1995), Burkhauser et al. (2000), Machin, Manning and Rahman (2003)), other studies, including Card (1992) Katz and Krueger (1992) Card and Krueger (1994), Machin and Manning (1994), Card and Krueger (1995), Dickens, Machin and Manning (1999), fail to find negative emloyment effects from minimum wages.
Yusuf Soner Baskaya, Central Bank of Turkey, Yuna Rubinstein, London School of Economics (2011)

Introduction

The resolution for the May national tournament for the National Catholic forensic League is, Resolved:  Minimum wage laws benefit the United States economy.
This resolution grows out of the current political controversy regarding whether the United States federal government (the central government in Washington, DC) should raise the federal minimum wage – the minimum per hour amount that workers must be paid. Each of the fifty states, and some cities, also have their own minimum wage laws (they can pass laws to raise the minimum wage laws beyond the federal minimum) and there are always debates as to whether these various federal minimum wage laws should be raised. Currently the federal minimum wage is $7.25 and Obama and many Democrats are pushing Republicans in Congress to raise it to $10.10.

Resolution Wording Notes

There are some important notes regarding the resolution.
First, it is important to note that the resolution doesn’t quite capture the current debate regarding the minimum wage. The current debate is whether or not the minimum wage should be raised, not whether it exists at all. The question the resolution asks is whether minimum wage laws benefit that economy at all.
The failure of the resolution to completely capture the current controversy is problematic because there are very few advocates for entirely repealing minimum wage laws. It’s really just a question of whether or not it should be raised. Now within that literature there is a general discussion of the impact of minimum wage laws on the economy, so in that literature you can find evidence about what the question of the resolution is asking. But, it is a bit difficult to find evidence that directly speaks to the question of the resolution.
I do think it is possible for teams to argue that the question of an increase is relevant because if there were no minimum wage laws (if the Con, for example, argues for a world without minimum wage laws), then it would not be possible to raise the minimum wage. Nonetheless, I mostly included evidence in the Planet Debate release that generally speaks to the minimum wage pro/con debate and only included a few pieces of evidence that directly speak to the merits of an increase.
In addition to not really capturing the current debate, the resolution also doesn’t specify which minimum wage laws – federal or state.

There is research that demonstrates that there is a difference when states raise minimum wages as compared to the federal government

Yusuf Soner Baskaya, Central Bank of Turkey, Yuna Rubinstein, London School of Economics, Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings Across the U.S. States, October 2011, http://businessinnovation.berkeley.edu/williamsonseminar/rubinstein110311.pdf
We find mild negative association between minimum wages and the employment of teenagers. The employment elasticity ranges from -0.24 (evaluated at the mean teenage employment-to-population ratio), controlling for state and national time effects, to approximately 0, when we allow for differential year effects across regions and state-specific long-run trends. In some detail, the first column reports the regression coefficient of employment on state effective minimum wages controlling for state and national time effects. In the second column, we control for local time trends using BLS classification of the US to 4 regions. Controlling for region year effects the regression coefficient drops from -0.10 (column i) to -0.071 (column ii).
To further control for local co-movements in the employment of teenagers and minimum wages, we introduce non-linear state-specific time trends. Using two sets of state effects for the periods before and after 1992 we allow for different state-specific effects during the first 15 years of our sample and the following 15 years (column iii). We find no association between state effective minimum wage and the employment rates of teenagers once we allow for state-specific long-run time effects. The long-run effect shrinks to -0.008. This result is robust to the inclusion of differential year effects for the 22 “F-States” and all other states. To summarize, we find no association between minimum wages and the employment rates of teenagers when we use the cross-state cross-year variation in states’ self-determined wage floors.

They continue

Yusuf Soner Baskaya, Central Bank of Turkey, Yuna Rubinstein, London School of Economics, Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings Across the U.S. States, October 2011, http://businessinnovation.berkeley.edu/williamsonseminar/rubinstein110311.pdf
Federal adjustments in national wage floors have larger disemployment effects in states that federal minimum wages are binding than in other states. This holds also when we allow for heterogeneous time trends in the employment of teenagers across geographic regions and between the “F-States” and all other states. For instance, the employment elasticity is approximately −05 controlling for state effects, national time effects and region year effects (columns i and ii).
We already noticed that the long-run elasticity of state minimum wages with respect to federal minimum wages is milder once estimated within periods (Table 2, columns iii and iv). Therefore, it is not surprising to find that the employment elasticity is also milder −0165 once we introduce pre-post 1992 state-specific effects. These findings hold whether we employ the time invariant specification (1) or the time varying specification ( 2) to approximate states’ propensity to be restricted by federal wage standards. It is worth noticing that, with specifications allowing for pre-post 1992 state-specific effects, we do find that federal adjustments in minimum wages have larger impact on the employment of teenagers in states that federal wage floors are binding than in other states, while we find no association between the employment rates of teenagers and state self-determined minimum wages.

This is most likely because states raise minimum wages when their own economies are strong and can handle the increases.

Yusuf Soner Baskaya, Central Bank of Turkey, Yuna Rubinstein, London School of Economics, Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings Across the U.S. States, October 2011, http://businessinnovation.berkeley.edu/williamsonseminar/rubinstein110311.pdf
We find that state effective minimum wages are pro-cyclical. Yet, this holds only for high income per capita “liberal” states where state-specific minimum wages are traditionally higher than federal wage floors. The elasticity of state minimum wages with respect to last year unemployment rate, evaluated at  = 0, that is 1, ranges between −45 to −28, depending on whether we use the static or the time varying specification to approximate . Yet, the pro-cyclicality of state effective minimum wages with respect to last year unemployment rate is inversely related to . We find that 2 ranges between 51 and 31 at same order of magnitude (in absolute terms) as 1. Thus the overall effect is practically zero for states that were traditionally restricted by the federal minimum wage policy. These findings are consistent with the interpretation that self-determined minimum wages are pro-cyclical. States adjust minimum wages in booms and are reluctant to update wage floors in busts. Therefore the use of state effective wages understates the causal impact of minimum wages on the employment of teenagers.

Given that the resolution does not specify state or federal, it makes it hard for debaters to assess the arguments on each side.
The economy. The other big problem with the resolution is that it focuses the question on whether or not minimum wage laws benefit the economy as a whole. The big question in the debate about the minimum wage is really not whether the wage has an overall positive or negative economic impact but whether or not the benefits it has in reducing poverty through putting more money in the pockets of low wage/low skilled workers is worth it (it offsets any negative effects). There are some arguments that will be discussed in more detail below that says that the minimum wage raises consumer spending, boosting the economy, but this really just means that the Pro must tie poverty to the economy – they must claim that reducing poverty would stimulate the economy because the poor have more money when there are minimum wage laws.
Despite the weaknesses in the word of the resolution, and I think those weaknesses are pretty substantial (A better resolution would have been, Resolved; The federal minimum wage should be $10/hour), debaters will still have to debate it. In the rest of this essay, I will review arguments for each side.

Pro

Economic stimulus. I think there are only two arguments that the Pro can make and this is one of them, and it is really the best argument they have. It has already been explained above and it is quite simple – higher pay means more consumer spending and more consumer spending stimulates economic growth.

Raisetheminimumwage.com, no date, http://www.raisetheminimumwage.com/pages/stimulus
Minimum wage increases put money in the pockets of low-wage workers who have little choice but to spend that money immediately in their local communities. Research has shown that raising the minimum wage boosts consumer spending, increasing the demand that drives economic growth. A 2011 study by the Chicago Federal Reserve Bank finds that minimum wage increases raise incomes and increase consumer spending, especially triggering car purchases.  The authors examine 23 years of household spending data and find that for every dollar increase for a minimum wage worker results in $2,800 in new consumer spending by his or her household over the following year. A 2009 study by the Economic Policy Institute estimates that Obama’s campaign pledge to raise the minimum wage to $9.50 by 2011 would inject $60 billion in additional spending into the economy. When the federal minimum wage was first enacted in 1938 at the height of the Great Depression, its twin goals were maintaining a wage floor to keep workers out of poverty, and stimulating the consumer spending necessary for economic recovery.  President Franklin Roosevelt called for its enactment as “an essential part of economic recovery,” explaining that by increasing the purchasing power of those workers “who have the least of it today, the purchasing power of the Nation as a whole – can be still further increased, (and) other happy results will flow from such an increase.”

Quality workers and productivity. Although this argument doesn’t get much play in the literature, there is an argument that the minimum wage increases wages, attracting higher quality workers to the market and boosting employee morale.

Robert Reich, Chancellor’s Professor of Public Policy at UC Berkeley and Senior Fellow at the Blum Center for Developing Economies, March 8, 2014, San Francisco Chronicle, Raising the Minimum Wage Creates Jobs, Boosts Economy, http://www.sfgate.com/opinion/reich/article/Raising-minimum-wage-creates-jobs-boosts-economy-5298319.php
In 1996, when I recommended the minimum wage be raised, Republicans and the chamber screamed that it would “kill jobs.” In fact, in the four years after it was raised, the U.S. economy created more jobs than were ever created in any four-year period. For one thing, a higher minimum wage doesn’t necessarily increase business costs. It draws more job applicants into the labor market, giving employers more choice of whom to hire. As a result, employers often get more reliable workers who remain longer – thereby saving employers at least as much money as they spend on higher wages. A higher wage also can help build employee morale, resulting in better performance. Gap, America’s largest clothing retailer, recently announced that it would boost its hourly wage to $10. Wall Street approved. Even if raising the minimum wage – or bargaining for higher wages and better working conditions or requiring businesses to provide safer workplaces or a cleaner environment – increases the cost of business, this doesn’t necessarily kill jobs. Most companies today can easily absorb such costs without reducing payrolls. Corporate profits now account for the largest percentage of the economy on record. Many companies are using their cash to buy back their own shares of stock, artificially increasing share value by reducing the number of shares traded on the market. Walmart spent $7.6 billion last year buying back shares of its own stock. Had it used that money on wages instead, it could have given its workers a raise from around $9 an hour to almost $15. Arguably that would have been a better use of the money over the long term, not only improving worker loyalty and morale but also giving workers enough to buy more goods from Walmart (reminiscent of Henry Ford‘s pay strategy a century ago).

Laura Giuliano of Haas School of Business, @ UC Berkeley made a similar argument about worker quality in 2009 study.
Poverty. The minimum wage has always worked to keep many workers out of poverty and there are strong arguments to be made that increasing it to the proposed $10.10 would put more money in worker’s pockets and reduce poverty.

Heidi Shierholz & David Cooper, Economics Policy Research Institute, February 20, 2014, CBO Reports Low wage workers would be better off with a minimum wage of $10.10, http://www.epi.org/blog/cbo-report-shows-wage-workers-minimum-wage/
CBO also found that 900,000 people would be lifted out of poverty. We agree that raising the minimum will lift a significant number of people out of poverty, and if anything, CBO’s estimate here seems conservative. CBO is a bit vague on how they came to their conclusion about the effect on poverty levels, but from what we can tell, it seems that they looked at current income levels, expected poverty levels in 2016, simulated how peoples’ incomes would change following the minimum wage hike, and estimated the change in the number of people in poverty. This is a perfectly reasonable approach; however, there’s a good body of research that has looked at the real-world experience of how minimum wage hikes have affected poverty levels. A recent paper by Arin Dube looks specifically at this question and estimates that in the past, for every 10 percent increase in the minimum wage, we’ve seen a 2.4 percent decrease in the number of people in poverty. This implies that increasing the minimum wage to $10.10 could reduce the number of people in poverty by as much as 4.5 million.

As discussed earlier, the only question the resolution asks the Pro to answer in the affirmative is whether or not the economy will benefit by increasing the minimum wage, so to win the relevance of the economy argument the Pro needs to argue that reducing poverty will improve the economy. There is strong evidence for this argument.

Gawaine Kirkpe, Oxfam America, April 4, 2014, 5 reasons to fight inequality: pick one, http://politicsofpoverty.oxfamamerica.org/2014/04/5-reasons-fight-inequality-pick-one/ (Gawain Kripke is the director of policy and research at Oxfam America and has more than 20 years of experience working on public policy and advocacy issues. He has testified before congressional committees and is a frequent news commentator on foreign aid, human rights, humanitarian issues, and agriculture policies.)
It’s not just poor people that rely on economic growth to improve their lives. We all do. So we all are invested in more, better, and more sustainable economic growth. Admittedly, there are critics of conventional definitions of growth and of the negative environmental consequences of growth. But by and large, people agree that growth is good. But, there is new and powerful evidence that high levels of inequality undermine economic growth. The reasons for this are not completely clear. High inequality seems to cause growth to stall out faster than in more equal societies. It may lead poorer people to take unsustainable risks to keep up with social norms (think credit card debt and balloon mortgages), leading to economic problems. In any case, high levels of inequality are bad for economic growth, which is bad for everyone. The most prominent, and surprising, voices making this case recently have come from the IMF.

One strategy that Pro teams may want to employ is to simply outline the inequality claim in the first Pro speech and not say anything about the relationship between poverty and economic growth. After the Con rebuttalist points out that the topic is about economic growth and not poverty, the Pro can use the piece of evidence above to demonstrate that poverty does hurt the economy. Due to the time pressure in the later speeches, the Con will have difficulty responding to this linkage late in the debate and the Pro should be able to win this reason that the minimum wage is good.
A focus of this essay has been on how each side can win that minimum wage laws have a net positive or a net negative impact on the economy. That, too, is a key focus in the literature on minimum wage laws. The resolution, however, arguably asks a much simpler question – do minimum wage laws benefit the economy. I think Pro teams could make the claim that they should win the debate f they win that minimum wage laws have at least one positive benefit on the economy those laws benefit the economy.
While I think Pro teams can make this argument, and while I think they should to see if they can get away with it (to see if the other team doesn’t respond), I do not think that it is a very good interpretation of the topic and that the Con. The Con should argue it is not a good interpretation of the topic because there is no evidence that that minimum wage laws have zero economic benefit, only whether the benefit is net positive. Moreover, it simplifies the debate too much – it just focuses the debate on whether or not there is one benefit rather than whether the laws are net desirable, which is more educationally valuable and more complex questions stimulate more complex critical thinking.
In addition to developing offensive arguments as to why the minimum wage helps the economy, the Pro also needs to answer common negative objections as to why it hurts the economy.
Unemployment. As discussed, the question of unemployment is really the central one in the debate and answering it in a way that is persuasive is going to be difficult for a number of reasons:
(a)   As discussed in the introductory quote to this essay, there are many students which reach opposite conclusions;
(b)   Many of the studies that argue that raising the minimum wage increases unemployment do not even identify a very strong impact – they just not that there is some increase in unemployment
(c)    The students are conducted in different ways and rely on different economic theories which are not only difficult to understand but also difficult to articulate (if you understand them) to a lay judge in a 45 minute debate.
To account for all of these factors, I suggest a few things —
(a) Emphasize, and find more cards for, the claim that the “best” and “most recent” studies conclude that there is no impact on employment. Make sure the card is from a qualified source. The Robert Reich evidence above is highly qualified. There is a lot of evidence from qualified sources in the Planet Debate release.
(b) Second, have strong explanations for why raising the minimum wage won’t cause companies to lay off workers – like how else will they account for the increased costs of higher wages? This article, which references a study (the evidence from the study is in the Planet Debate release), explains some of the major ways they might account for it.

Brad Plumer, February 14, 2013, Washington Post, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/14/why-economists-are-so-puzzled-by-the-minimum-wage/
This poses a conundrum. Why might the basic theory be wrong? That’s a question that John Schmitt of the Center for Economic and Policy Research explores in this new paper (pdf). He runs through a slew of theories for why a modest minimum-wage hike might not affect employment levels much. Basically, there are a variety of ways that labor markets can respond — and they don’t all involve more unemployment:
1) Employers can respond by cutting back on benefits or hours or training: Yes, a higher minimum wage means that companies have to pay their low-wage workers more. But that doesn’t mean they have to hire fewer workers. Perhaps businesses adapt by cutting back on other things, like health-care benefits or hours. Schmitt notes, however, that there’s little conclusive evidence that employers do this.
2) Employers can respond by cutting wages for other, higher-paid workers. One survey found that half of employers faced with a minimum-wage hike “would delay or limit pay raises/bonuses for more experienced employees.” If that actually happens, then the minimum wage might help low-wage workers at the expense of better-paid workers. This could even boost GDP in the short run if poorer workers are more likely to spend the cash.
3) Companies can raise their prices in response. One obvious possibility is that firms with lots of low-wage workers — say,  fast-food restaurants — simply pass along their extra costs to customers. One major literature review found that a 10 percent hike in the minimum wage leads, on average, to a 4 percent increase in prices at companies affected.
4) Companies can just settle for fewer profits. Another possibility is that companies just take the hit and accept lower profits rather than laying people off. Research on whether this happens is pretty inconclusive, however.
5) Employers can respond by becoming more efficient. If minimum-wage workers suddenly cost a bit more, perhaps businesses will react by trying to squeeze more productivity out of them. Schmitt notes that there’s some evidence that this happened in fast-food chains in Georgia and Alabama. Managers started requiring better attendance and asking their employees to take on extra duties in response to a minimum-wage hike.
6) Workers themselves might respond by voluntarily working harder. Schmitt notes that there have been plenty of theoretical papers written about how people might work harder and be more productive if they’re suddenly paid more. Some of these models could even explain why a hike in the minimum wage doesn’t lead to higher unemployment. But, Schmitt adds, there’s not much empirical evidence here.
7) Companies might actually save money from a minimum-wage hike because there’s less employee turnover. If minimum-wage workers get a raise, they’re far more likely to stay on the job longer. And that’s good for employers. After all, constant worker turnover is a pain — there’s the cost of screening, of training, of vacancies. Schmitt notes that lower turnover could ease the costs of higher wages. That could explain why employment levels don’t really change.

© If you think it is possible, try to understand one study as much as you can and then explain why it is the best and better than any other study.
(d)   It is important that you directly address the claim that raising the minimum wage increases youth unemployment., as there are some studies that have been done directly on this issue and some authors claim that the best evidence is about youth unemployment. This is one study that addresses the argument and more evidence is available in the release.

John Schmidt, economist, Senior Economist at the Center for Economic and Policy Research in Washington, D.C., 2013, “Why Does the Minimum Wage Have No Discernible Effect on Employment?”, http://www.cepr.net/documents/publications/min-wage-2013-02.pdf
Meta-studies are “studies of studies” that use a set of well-defined statistical techniques to pool the results of a large number of separate analyses. Meta-study techniques effectively increase the amount of data available for analysis and can provide a much sharper picture of statistical relationships than is possible in any individual study. Meta-studies are widely used in medicine, where the results of many small clinical trials can be combined to produce much more accurate estimates of the effectiveness of different kinds of treatments.
Hristos Doucouliagos and T. D. Stanley (2009) conducted a meta-study of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment in the United States. When they graphed every employment estimate contained in these studies (over 1,000 in total), weighting each estimate by its statistical precision, they found that the most precise estimates were heavily clustered at or near zero employment effects (see Figure 1). Doucouliagos and Stanley’s results held through an extensive set of checks, including limiting the analysis to what study authors’ viewed as their best (usually of many) estimates of the employment impacts, controlling for possible correlation of estimates within each study, and controlling for possible correlation of estimates by each author involved in multiple studies. Doucouliagos and Stanley concluded that their results “…corroborate [Card and Krueger’s] overall finding of an insignificant employment effect (both practically and statistically) from minimum-wage raises.”12 In their view: “Two scenarios are consistent with this empirical research record. First, minimum wages may simply have no effect on employment… Second, minimum-wage effects might exist, but they may be too difficult to detect and/or are very small.”13
Paul Wolfson and Dale Belman have carried out their own meta-analysis of the minimum wage, focusing on studies published only since 2000. They identified 27 minimum wage studies that produced the necessary elasticity estimates and corresponding standard errors, yielding 201 employment estimates in total. They then produced a range of meta-estimates, controlling for many features of the underlying studies, including the type of worker analyzed (teens or fast food workers), whether the study focused on the supply or the demand side of the labor market, who the authors of the study were, and other characteristics. The resulting estimates varied, but revealed no statistically significant negative employment effects of the minimum wage: “The largest in magnitude are… positive [and] statistically significant… Several are economically irrelevant though statisticallysignificant and several others [are] slightly larger but…statistically insignificant.

Con

You can’t prove it. Ultimately, I think this is the best Con argument. It is the argument that they should emphasize in the Final Focus and it is the reason that teams should choose the Con if they win the coin toss.
The reality is that while there are good arguments as to why the minimum wage doesn’t undermine the economy – won’t significantly increases business costs that are too difficult to absorb, won’t lead to significant lay-offs, won’t lead to significant cut backs in benefits – but there are also good arguments that these negative economic impacts offset the positive benefits that were initially discussed in the Pro section of the essay.
Even advocates of raising the minimum wage argue that the benefits above (stimulus, improved productivity) simply offset the business costs.

Robert Reich, Chancellor’s Professor of Public Policy at UC Berkeley and Senior Fellow at the Blum Center for Developing Economies, March 8, 2014, San Francisco Chronicle, Raising the Minimum Wage Creates Jobs, Boosts Economy, http://www.sfgate.com/opinion/reich/article/Raising-minimum-wage-creates-jobs-boosts-economy-5298319.php
Finally, it’s important to remember the real source of job creation. Businesses hire more workers only when they have more customers. When they have fewer customers, they lay off workers. So the real job creators are consumers with enough money to buy. Even Walmart might be starting to understand this. The company is “looking at” whether to support a minimum wage increase. David Tovar, a Walmart spokesman, noted that such a move would increase the company’s payroll costs but would also put more money in the pockets of some of Walmart’s customers. In other words, forget what you’re hearing from the Republicans and the Chamber of Commerce. The real job killers in America are lousy jobs at lousy wages.
Furthermore, the most recent studies are considered significant improvements over previous studies because of the methodologies employed. Specifically, these studies accurately control for confounding regional trends by either controlling for heterogeneous trends across Census divisions, or byexamining all U.S. counties along state borders that had different minimum wages. This research design combines the detailed analysis possible in case studies with the generalizability of a nationally representative sample. All of the studies came to the same conclusion: Raising the minimum wage had no effect on employment levels.
Contrary to most of the rhetoric, the results of these studies are not surprising because research indicates that raising the minimum wage boosts demand, increases worker effort, and reduces turnover, counteracting the higher wage costs.

Given the wording of the resolution, the Pro can’t win the debate simply by winning that the minimum wage has no net negative affect on the economy. In order for the Pro to win the debate they have to prove minimum wage laws benefit the economy, not that they just don’t hurt it. Sure, contemporary advocates of raising the minimum wage can make this argument because if they win it they can win that it is a good idea to raise it to help out the poor a bit as long as it doesn’t hurt the economy, but given the poor wording of the resolution this just isn’t enough for the Pro.
The reality of the fact that any potential benefits likely offset the losses is coupled with the argument that it is just simply very difficult to prove any net effect of the minimum wage on the economy – positive or negative. You can certainly find powerfully worded cards from advocates on both sides that opine all kinds of theories, but the reality is that the empirical research on past increases often identifies conflicting results with marginal impacts on either side of the debate – small, but often statistically insignificant effects.
Answering the poverty argument. Pro teams need to be prepared to answer the argument that raising the minimum wage will reduce poverty. Their first argument should be that the resolution is about the overall economy, not a reduction in poverty. Pro teams (that didn’t read this blog J) might not have evidence that ties poverty to the overall economy.
Pro teams can also attack the link to the poverty argument, contesting the claim that minimum wage laws (or an increase in the minimum wage) will reduce poverty.

Mark Wilson, CATO Institute, 2012, The Negative Effects of Minimum Wage Laws, http://www.downsizinggovernment.org/labor/negative-effects-minimum-wage-laws Mark Wilson is a former deputy assistant secretary of the U.S. Department of Labor. He currently heads Applied Economic Strategies, LLC, and has more than 25 years of experience researching labor force economic issues.
Proposals to increase the minimum wage can be politically popular because they are viewed as being a way of helping the poor. However, evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels. Some of the reasons include

  • Many poor Americans (63.5%) do not work, and thus aren’t earning wages.42
  • Even among the working poor, the relationship between earning a low hourly wage rate and living in poverty is weak and has become weaker over time. That is because most workers who gain from a minimum wage increase live in nonpoor families and most of the working poor already have wages above the required minimums.43
  • While an increase in the minimum wage will lift some families out of poverty, other low-skilled workers may lose their jobs, which reduces their income and drops their families into poverty.44
  • If a minimum wage is partly or fully passed through to consumers in the form of higher prices, it will hurt the poor because they disproportionately suffer from price inflation.45

Relatively few poor households would benefit from a minimum wage increase even if there were no negative employment or other affects. In the recent federal minimum wage increase from $5.15 to $7.25, only 15.8 percent of the workers who were expected to gain from it lived in poor households.46 In the current proposal to raise it to $9.50, only 11.3 percent of the workers who would gain live in poor households.47 And of those who would gain, 63 percent are second or third earners living in households with incomes twice the poverty line.
Since 1995, eight studies have examined the income and poverty effects of minimum wage increases, and all but one have found that past minimum wage hikes had no effect on poverty.48 One recent academic study found that both state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates.49These studies generally find that some low-skilled workers living in poor families who remain employed do see their incomes rise. However, other low-skilled workers lose their jobs or have their work hours substantially reduced, which causes income losses and increased poverty. On net, some studies find that the families of low-skilled workers and less-educated single mothers are no better off and may be made worse off by minimum wage hikes.50 The upshot is that there is no free lunch to this sort of top-down mandated attempt at reducing poverty.

Con teams also need to answer the argument that a minimum wage increase will benefit the economy by creating an economic stimulus due to more money in the pockets of low wage workers. While it isn’t possible to completely refute this, there is evidence that the impact is very small and that it only applies to the auto industry.

Daniel Aaronson, et al, Federal Reserve Bank of Chicago, 2011, The Spending and Debt Responses to Minimum Wage Increases, http://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_23.pdf
We present four key empirical findings. First, a $1 minimum wage hike increases house- hold income by roughly $250 and spending by approximately $700 per quarter in the year following a minimum wage hike. These findings are corroborated by independent data show- ing that debt rises substantially after a minimum wage increase. The results are particularly surprising given that many adults earning the minimum wage at a point in time make above the minimum two years later. Second, the majority of this additional spending is in durable goods, particularly vehicles.The majority of the additional debt increase is in collateralized debt, such as auto loans. Consequently, the spending response is concentrated among a small number of households. Third, total spending increases within one quarter of a minimum wage increase and not prior, despite legislation typically passing 6 to 18 months before enactment. Finally, high levels of durables spending and debt accumulation persist for several quarters after a minimum wage hike. These results are robust to changes in sample selection criteria and a variety of covariates. Furthermore, we find that the minimum wage has no income or spending effect on households with workers earning at least double the minimum wage.

So far the Con essay has focused on defensive arguments against Pro claims that that minimum wage laws benefit the economy. The essay started this way because I think that the core argument at the end of the debate for the Con should be that the laws do not have any positive benefit. I do, however, also think that this should be coupled with an argument that the laws also have negative effects (which provides support to the argument that there is no net positive benefit).
There are a number of negative economic impacts to increasing minimum wage laws.
Unemployment. As discussed, there are as lot of studies that show that minimum wage laws reduce employment.

Linda Gorman, 2008, is a senior fellow with the Independence Institute in Golden, Colorado. She was previously an economics professor at the Naval Postgraduate School in Monterey, Minimum Wages, California., http://www.econlib.org/library/Enc/MinimumWages.html
Several decades of studies using aggregate time-series data from a variety of countries have found that minimum wage laws reduce employment. At current U.S. wage levels, estimates of job losses suggest that a 10 percent in crease in the minimum wage would decrease employment of low-skilled workers by 1 or 2 percent. The job losses for black U.S. teenagers have been found to be even greater, presumably because, on average, they have fewer skills. As liberal economist Paul A. Samuelson wrote in 1973, “What good does it do a black youth to know that an employer must pay him $2.00 per hour if the fact that he must be paid that amount is what keeps him from getting a job?”3In a 1997 response to a request from the Irish National Minimum Wage Commission, economists for the Organization for Economic Cooperation and Development (OECD) summarized economic research results on the minimum wage: “If the wage floor set by statutory minimum wages is too high, this may have detrimental effects on employment, especially among young people.” This agreement over the general effect of minimum wages is long-standing. According to a 1978 article in American Economic Review, 90 percent of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers.

Workers with low skills are particularly vulnerable.

James Sherk, Senior Policy Analyst in Labor Economics at The Heritage Foundation, What is the Minimum Wage: Its History and Effects on the Economy, 2013, http://www.heritage.org/research/testimony/2013/06/what-is-minimum-wage-its-history-and-effects-on-the-economy
The minimum wage especially hurts disadvantaged workers’ job prospects. Higher minimum wages encourage employers to replace less-skilled workers with more productive employees. Given the choice between hiring an unskilled worker for $10.10 an hour and a worker with more experience for the same rate, companies will always choose the more experienced and productive employee.
Higher minimum wages also make working in such jobs more attractive, drawing greater numbers of workers with outside sources of income into the labor market. Many suburban teenagers and college students enter the labor market when the minimum wage rises. As they apply for job openings they crowd out urban teenagers and disadvantaged adults who would have sought the jobs at the previous wages. Overall, the minimum wage reduces disadvantaged workers’ employment much more than it reduces overall employment. It causes the very workers minimum wage advocates most want to help to have the greatest difficulty finding jobs.
Empirical research consistently bears this out. One recent study examined administrative data from a large retail chain. When the minimum wage rose, the chain slightly reduced overall employment. Surprisingly, however, teenage employment rose in several stores. These teen employment gains came at the expense of larger job losses among adults. The composition of teenage employment also changed, with more teens coming from wealthier neighborhoods and fewer from low-income neighborhoods. The higher wages prompted many suburban teenagers to apply for work. They crowded many low-income adults and youth out of jobs.
Another study examined how teenage employment and school enrollment changed after states raised their minimum wage. It found that when states raised their minimum wage, younger teens and those who had dropped out of school were more likely to become unemployed. At the same time, higher-skill teenagers were more likely get jobs. When they have to pay higher wages, businesses hire higher-skill workers, freezing the least productive workers out of the job market.
Even studies that find the minimum wage has negligible overall employment effects find it decreases the employment of disadvantaged workers. Kevin Lang and Shulamit Kahn of Boston University examined how restaurant employment changed after minimum wage hikes in the late 1980s and early 1990s. They found no evidence that the minimum wage reduced total restaurant employment, but they did find that it dramatically changed the mix of workers that restaurants hired. Teenage and student employment rose, while adult employment dropped.
A higher minimum wage is great news for a high school student working part time to buy an iPhone. It hurts lower-skill adult workers who need work to support themselves and perhaps their families. Making entry-level jobs less available makes it harder for them to gain the skills and experience necessary to advance to better paying jobs. The minimum wage effectively saws off the first rung on their career ladder.

And so are young workers.

Yusuf Soner Baskaya, Central Bank of Turkey, Yuna Rubinstein, London School of Economics, Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings Across the U.S. States, October 2011, http://businessinnovation.berkeley.edu/williamsonseminar/rubinstein110311.pdf
In contrast to past work, we find substantial negative employment effects of minimum wages on teenage employment. The estimated Two State Least Squares (TSLS) employment elasticities with respect to minimum wages in the standard state-year level specification is approximately -0.50. These results are robust to the use of alternative specifications of state’s propensity to be bounded by federal minimum wages. Furthermore, consistent with recent findings by Dube, Lester, and Reich (2010) that OLS estimates are somewhat milder and statistically insignificant once we account for spa- tial heterogeneity using regional time effects. Yet, in contrast, our TSLS estimates are robust to the inclusion of regional time effects and state-specific long-run trends.
Although I do not think the Con needs to win that minimum wage laws have a net negative impact on the economy, it is possible that some judges may think this (especially if you don’t explain why I don’t think they have to) and the reasons that minimum wage laws undermine the economy help establish that those laws have no net positive economic impact.

Conclusion

The NCFL resolution for the May national tournament picks-up on an important current national issue –whether or not the federal minimum wage should be increased. Although the resolution is not written in a way that directly captures this debate (it is not explicitly about an increase in the federal minimum wage), it accesses this core literature base and many of the same arguments.
There are strong arguments on both sides of the debate, but I think it will be hard for the Pro to demonstrate that there is a net positive economic benefit of minimum wage laws. For this reason, I encourage teams to choose the Con if they have the option of choosing their side.