12 Jan 2007 Minimum Wage Employment Impact Study: How To Cook The Numbers 101

David Hogberg examines a study the left often cites as proof that increasing the federal minimum wage won’t harm employment:

House Majority Leader Steny Hoyer, in a speechsupporting an increase in the minimum wage, claimed,

According to one recent study small business employment grew more between 1997 and 2003 in states with a higher minimum wage than in those adhering to the federal minimum wage. In other words, in those states that were paying above the $5.15 an hour their economies grew more and they created more jobs than did those states which had frozen their minimum wage at the federal minimum wage.

That “study” (pdf) was conducted by the liberal Fiscal Policy Institute. It is a textbook case in cooking the data. Specifically, the authors find every way to measure employment in a way so as to avoid looking specifically at those industries most affected by an increase in the minimum wage.

First, the authors of the study compare total employment in the ten states and D.C. that had a minimum wage higher than the federal minimum to the other 40 states (see page 8). That means the roughly 2 million minimum wage jobs get mixed in with the other 150 million other jobs in the nation. So that tells us next to nothing.

Next (page 9), they look at retail trade jobs, which, they claim, “tend to pay the lowest wages among all industries in the economy, and thus are more likely to be affected by the minimum wage than other industries.” But this leaves out the accommodation and food industries. Indeed, the restaurant industry is one of the industries most affected by a hike in the minimum wage. So, in their attempt to look at industries most affected by a hike in the minimum wage, they conveniently leave out industries most affected by a hike in the minimum wage.

Finally, the authors look at all small businesses, defined as those businesses with 50 or fewer employees (see page 10). Not those small businesses most likely to be affected by a minimum wage, but all small businesses. So if you are a law firm with 40 people, or a think-tank like the National Center for Public Policy Research, you are assumed to be affected by a hike in the minimum wage just as much as if you a running a mom-and-pop diner. Sounds like good research to me!

Regrettably, a hike in the minimum wage now seems very likely. With the likes of Hoyer able to propagandize using garbage posing as serious research, it’s little wonder.