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News from EPI Evidence still shows that minimum wage increases have no effect on employment

In Employment fell because of the Great Recession, not the minimum wage, EPI economist Ben Zipperer critiques a widely-cited paper by Jeffrey Clemens and Michael Wither, which claims that the national minimum wage increases from 2007 to 2009 led to substantial job losses in states that raised their minimum wages to meet the new national requirement. Zipperer argues that Clemens and Wither’s analysis fails to adequately account for the effects of the Great Recession.

“It is difficult to separate the employment effects of the minimum wage from employment declines due to the recession,” said Zipperer. “Once you do so the evidence is clear: the last set of federal minimum wage increases had little-to-no effect on the employment levels of low-wage workers.”

Zipperer’s analysis draws extensively from a Washington Center for Equitable Growth working paper, also released today.

In their analysis, Clemens and Wither fail to account for states’ different industrial structure. Doing so substantially reduces what they estimate the employment effect of the minimum wage increases to be. For example, southern states, which saw their minimum wages increase the most, have above average numbers of construction jobs and were disproportionately affected by the recession.

Furthermore, the states that saw their minimum wages increase the most were not uniformly distributed throughout the United States. The regional pattern of state minimum wages causes the authors to conflate the regional shocks of the Great Recession with minimum wage increases. Controlling for the geographic concentration of states also substantially reduces the magnitude of Clemens and Wither’s findings.

Lastly, a “placebo” test of the importance of geographic clustering of states strongly supports the notion that Clemens and Wither’s findings are statistically biased by failing to include geographic controls.

Simply put, once proper controls are included, there is no significant evidence that job losses in the post-2007 period were driven by federal minimum wage increases rather than the effects of the Great Recession.