Employment Policy Group: Activists Use Economically Flawed Research on Minimum Wage

New Analysis Shows Faulty Methods Used to Promote Activists’ Agenda
  • Publication Date: April 2011

  • Topics: Minimum Wage

Today, the Employment Policies Institute (EPI) released a new analysis exposing the flaws in minimum wage research from activist economists at the University of California – Berkeley’s Institute for Research on Labor and Employment.

The research, being promoted by policy advocates at the National Employment Law Project, erroneously claims that minimum wage increases do not cause job loss or slow hiring for inexperienced groups such as teens.

The full analysis highlighting the flaws in the activists’ study can be viewed here: http://epionline.org/downloads/US_Edition.pdf.

EPI research fellow Michael Saltsman also released the following statement on the research:

The findings in this new research are no more than a statistical charade.

Economists look for minimum wage effects by examining how employment growth in a state compares to its minimum wage policies, controlling for factors that might be related to both the state’s employment growth and its minimum wage policy. But there’s a catch—if you add too many of these controls, employment loss that’s directly related to a wage mandate on employers is masked and instead looks like the regular ebb and flow of the labor market.

The Berkeley researchers are well aware of this, which is why they jammed their new study with over 800 controls (as a point of comparison, the typical minimum wage study has about 80 controls). With this statistical sleight-of-hand, they virtually guaranteed that any reduction in teen employment between 1990 and 2009 was blamed on regional economic variation instead of increases in the minimum wage.
Using this flawed study design, every state in a Census division—say, the Mid-Atlantic division of New Jersey, New York, and Pennsylvania—could simultaneously raise their minimum wage to a staggering $50 an hour and this study attribute the resulting job loss to regional economic variation.
Studies that tell advocacy groups like NELP what they want to hear may play well at political rallies, but they need to be backed up with empirical evidence.

Without such support, their results should be discarded in favor of more credible evidence that’s been built up over decades of economic research—evidence that clearly points to teen job loss caused by wage mandates.