bellmanWhat Does the Minimum Wage Do?

By: Dale Belman and Paul J. Wolfson

471 pp
$55 hardcover
$35 paperback

W.E. Upjohn Institute for Employment Research


Belman and Wolfson have compiled the most comprehensive, analytical, and unbiased assessment of the effects of minimum wage increases that has ever been produced. Based on a rigorous meta-analysis of more than 200 scholarly publications published since 1991 (most after 2000) that address the various impacts of raising the minimum wage, the authors observe several outcomes influenced by increases in the minimum wage, how long it takes those outcomes to respond, the magnitude of effects, why increases in the minimum wage have the results they do, and the workers most likely to be impacted.

 The breadth and depth of their investigation clarifies the issues surrounding employment, wages, poverty and inequality, and effect by gender.

 This is essential reading for anyone interested in the effects of raising the minimum wage.

Read a posting by Jared Bernstein that mentions the book by Belman and Wolfson. 


1. Introduction

Part 1: Micro

2. Employment

3. Hours of Employment

4. Meta-Analysis

5. Wages and Earnings

6. Human Capital

7. Poverty and Inequality


Part 2: Macro

8. Gross Flows in the Labor Market

9. Labor Force Participation Rate, Unemployment, and Vacancies

10. The Product Market

11. Conclusion


This book attempts to make sense of the research on the minimum wage that began in the early 1990s. The authors look at who is affected by the minimum wage, both directly and indirectly; which observable, measurable variables (e.g., wages, employment, school enrollment) the minimum wage influences; how long it takes for the variables to respond to the minimum wage and the size and desirability of the effect; why the minimum wage has the results it does (and not others); and the workers most likely to be affected by changes to the minimum wage.


Review by Randy Albelda in Perspectives

Good question—and timely as well. In 2014, nine states legislated increases to their state minimum wage, while voters in four other states approved increases through the

ballot box. In the same year, San Francisco, Seattle, Los Angeles, Oakland, and Washington, D.C., also boosted their minimum wage. And no doubt, in all of these places, legislators and voters have heard answers to this question that highlight the promise and perils of increasing the minimum wage.


Belman and Wolfson provide an invaluable service, especially to academics asked to testify on minimum-wage changes, by carefully summarizing and evaluating the ndings of more than 200 studies (mostly, but not exclusively, using U.S. data) of minimum-wage changes and their impact on an array of economic outcomes. The authors also provide a new meta-analysis of these studies. It is an heroic task.

The presentation of the published empirical studies on minimum-wage increases is exhaustively thorough, detailed (providing information on datasets used, techniques employed, workers targeted), and well organized. It is also, thankfully, written for an audience not steeped in sophisticated econometric techniques, unlike many of the articles they review.

Still, this book will be best suited for those familiar with minimum-wage debates and who have at least a modicum of knowledge of statistics. Advocates and opponents of the minimum wage, all-purpose policy wonks, and state and local government administrators and practitioners will find the book incredibly useful in sorting out the potential (i.e., theoretical) and actual impacts of changes to the minimum wage. Fittingly, the authors recently received the Bowen Award for the most important public policy book of 2014 from the Labor Relations Section at Princeton University.

So, what does the minimum wage do? The authors summa- rize their extensive survey of the literature and their meta- analysis of the research in the following straightforward and understated way: “Evidence leads us to conclude that mod- erate increases in the minimum wage are a useful means of raising wages in the lower part of the wage distribution the has little or no effect on employment and hours” (p. 401). Neither opponents’ claims that the minimum wage hurts the very same people it is supposed to help, nor proponents’ argument that minimum wage increases are the panacea for reducing poverty and wiping out inequality (although it does modestly help), seem to be overwhelmingly supported by the research.

The authors’ extensive assessment of the research is calibrated in large part using the criteria of sound and increasingly sophisticated statistical techniques. Placing more weight on these studies leads Belman and Wolfson to conclude that the preponderance of evidence is that the minimum wage modestly, but signi cantly, increases the incomes of low-income workers, which in turn reduces inequality at the bottom of the earnings scale with virtually no overall reduction of the level of employment or hours of work.

There is a good bit of empirical “noise” in the minimum- wage literature, and in many ways, reviewing it is a moving tar- get, given that the studies are taking place over several decades in which structural shifts are occurring, many rely on different datasets, focus on different target populations, employ different techniques, and report outcomes differently. While this makes the authors’ task all the more dif cult, it also raises questions about the ability to draw hard and fast conclusions.

To the degree that empirical research can settle long-standing political debates, this book may help lower the volume on this one. Raising the minimum wage has been a more common polit- ical battle in states and localities, because the federal minimum wage is set legislatively at irregular and infrequent intervals. It is not indexed to in ation, so annually loses value.

The current U.S. federal minimum wage is $7.25 an hour, set in 2009 (there is a much lower minimum of $2.13 for tipped workers that has notbeen changed since 1991), is often below a minimum standard of living for a single adult, let alone a worker with children. The rise in income inequality and a lackluster recovery as far as earnings go have recently fanned ames on the minimum-wage debate. Despite employer opposition, increasing the minimum wage has proved popular among the voting electorate, which may help to explain why a Republican-dominated Congress is loathe to take it up.

In their review of the literature, Belman and Wolfson cover the waterfront of minimum-wage impacts. The body of the book is organized by devoting each chapter to a single or related set of economic outcomes. The authors present the predicted relationship between the outcome and the minimum wage and then discuss what the research on the topic nds. They provide an assessment of research techniques and main nding “takeaways” for each chapter topic. The task of reading is made easier by the clear, well-formatted, info-packed table summaries.

In an early chapter, the authors lead the reader through some of the important debates and historic developments in methodological techniques used in minimum-wage research, most famously starting with the Alan Krueger–David Card studies ( nding no discernable employment effects) matched against those of David Neumark and William L. Wascher ( nding negative employment effects). Many minimum-wage studies rely on “difference-in-difference” models that compare changes in economic outcomes (such as employment levels) across geographic regions (or time), where in some areas (time periods), there has been an increase in the minimum wage but not in others.

A particularly important standard the authors apply in their evaluation of these studies is whether researchers have applied the appropriate corrections to the serial correlation that is endemic in this technique. Serial correlation results in biased standard errors, which then exaggerate the signi cance of results. Not correcting for serial correlation was common in research conducted before the early 2000s. As a result, the authors place more stock in the research performed since then, as those are more likely to be prop- erly corrected. The authors tend to sidestep an ongoing empirical tiff among minimum-wage researchers about the proper forms of correction, which not surprisingly provides very different results.

Belman and Wolfson have matched the length of the chapters to the volume of the research. This means a large portion of the book is devoted to discussing three employment effects—the level of employment, hours, and earnings. A particularly long chapter focuses on the first of these, with attention to the signs and signi cance levels of wage elasticity (the percentage change in employment that results from a percentage change in the minimum wage). The largest portion of the research on employment levels focuses on teenagers, a group that is often targeted for excluding from the minimum wage.

Another chapter is devoted to hours of employment, and a third to the authors’ meta-analysis (and review of an earlier one) of these studies. A fourth chapter tackles the impact of increases on the minimum wage to wages and earnings, including how far up the wage ladder minimum-wage changes have effects and what the effects are over time.

The rest of the topics they explore include:

  • if and how increases in the minimum wage affect workers’ and employers’ decisions to invest in education and training,

  • levels of poverty and income inequality, overall flows of workers into or out of the labor market (including labor- force participation rates, unemployment, and vacancies), and 

  • employers’ output (product markets).

    Each of these topics is quite important in evaluating the impact of minimum-wage changes but are much less studied.

    A larger share of the political debate has turned to these issues, though, so research is needed (academics can breath a sigh of relief). Proponents of increases often argue higher minimum wages are a key ingredient in reducing income inequality, that low-wage workers deserve a wage that allows them to support themselves, and that low-wage workers will spend their new earnings on basic consumption items, increasing the demand for local goods and services. The data to back these claims up, however, are sparse.

    The book is long but is worth a careful read for those interested in the details of the research. Some readers with less time or interest in the details might start with the conclusion and then pick and choose to read the chapters of most inter- est or merely go through the table summaries. The concluding chapter is short and has a succinct summary of the very detailed description of more than 200 studies covered in previous chapters. There is also a brief and interesting discussion of what is at stake for research in the minimum wage.

    Overall, the book makes a very useful and important contribution to the literature on the minimum wage, and, if used in the political arena, has the potential to help tone down the rhetoric and ramp up the facts.

    Still, there were some missed opportunities. The lack of research attention to topics beyond employment levels, wages, and hours parallels the narrow coverage of theoretical perspectives presented in the book (but is representative of the economics profession). And while the authors cannot produce research that isn’t there, they could acknowledge and describe the alternative theoretical frameworks that tend to predict these studies’ outcomes.

    Throughout, the authors almost exclusively use a lens of traditional neoclassical economics to predict the impacts of the minimum wage, relying on three variants of the model. The rst is the competitive labor-market model, familiar to anyone who has taken an introductory microeconomics course. This is the classic supply-and-demand model that predicts a mandated wage increase above the current equilibrium wage will result in a new, higher equilibrium wage and less total employment. Belman and Wolfson apply two variations of this conventional neoclassical wage model (i.e., monopsony and search models) to present alternative predictions.

    Expanding the theoretical repertoire to include non-neoclassical approaches might have led them to discuss Keynesian demand dynamics or (neo)Marxist, institutionalist, and feminist theories of class and power dynamics. Keynesian models predict positive employment effects as workers’ purchasing power increases. Minimum wage battles in Marxist and institutionalist models are seen exactly as that—rights over the surplus (or productivity gains) and workers’ basic living standards in which capital always fights to keep wages low and workers fought back. When workers (and their allies) win, capital figures out ways to boost workers’ productivity or otherwise absorb wages increases.

    Feminist theories bring in the element of intra-class gender inequality and shed light on women’s paid and unpaid work in relation to wage setting. These types of arguments are increasingly made in the minimum-wage debates.

    A wider range of alternative approaches might have led the authors to spend some time on the historical arguments about implementation of the minimum wage—and not only those that occurred during the passage of Fair Labor Standards Act in 1938 that gave birth to the federal minimum wage. There were also minimum-wage laws passed in the states at the turn of the 20th century, but they were applied to women workers only. A better understanding of the intent of, and debates over, the original legislation would have also provided a stronger context to the review of the research.

    The authors do not take commenting on the economics profession as part of their charge in examining what minimum wages do. I wish they had, as it probably would have helped ex- plain why the research is so focused on employment levels. Still, in the concluding chapter the authors can’t resist. In particular, they take note of the dif culty involved in trying to review and compare studies on the same topic given the wide array of techniques, datasets, years, populations studied, and lack of routine robustness checks. They call for more attention to craftsman- ship (“the workmanlike investigation of an issue”) over innovation. If there were more standard ways in which economists evaluated this topic, they argue, it would allow for a much more effective way to weigh the empirical evidence needed to evaluate minimum-wage policies.

    No doubt this would have made their job much easier, but this raises a whole host of questions. An important one is who gets to decide the standards for conducting the research? In a profession that is known for disagreement (thus engendering the jokes about ten economists with fifteen opinions and about wanting one-handed economists), this is hard to imagine.

    The problem of varied approaches and findings, however, raises a different set of issues worth contemplating. One I think a good deal about is: can empirically driven evidence, increasingly demanded by foundations and others, really promote better policymaking? Empirical evidence is absolutely vital, but I also know that after years of doing poverty research, economic research and the way it is used and understood by policymakers and the public take place on an ideological (belief-driven) ter- rain. So the empirical evidence one chooses to uncover is also not neutral. It would be very easy to pick and choose among the research reviewed in this book to make a strong empirically based case for or against minimum-wage increases.

    Belman and Wolfson have done labor economists and the policy world a huge favor of compiling, summarizing, and evaluating an incredibly large amount of empirical research on the minimum wage. We now have a guidebook through the empirical evidence. But, even so, I do not think they have settled the research or policy debate. Economists will and should con- tinue to re ne their empirical models and extend the research to outcomes beyond employment levels, hours, and wages. Data matter. But so do beliefs and political forces, which ultimately will guide important policy decisions.

     Randy Albelda

    Randy Albelda is a professor of economics, graduate program director of the M.A. in Applied Economics, and senior research fellow at the Center for Social Policy at University of Massa- chusetts Boston. Her research and teaching cover a broad range of economic policies, with a particular focus on that affecting low-income women and families. In addition to many academic journal articles, she is coauthor of the books Glass Ceilings and Bottomless Pits: Women’s Work, Women’s Poverty; Unlevel Playing Fields: Understanding Wage Inequality and Wage Discrimination; and co-editor of Lost Ground: Poverty, Welfare Reform and Beyond.