The minimum wage: does it hurt workers?

• The global minimum wage landscape has shifted since 1894, when New Zealand enacted the first national base pay laws; currently, 90% of countries implement some form of minimum wage.
• The concept faces persistent theoretical opposition based on standard supply-and-demand models, which predict that raising labor costs leads to reduced employer demand and increased unemployment.
• The United States introduced its first federal minimum wage in 1938 under President Franklin Roosevelt at 25 cents per hour; the rate remains at $7.25 per hour today, having peaked at a real-term value of approximately $12 in 1968.
• Divergent local policies in the US created a "patchwork quilt" of wage floors by the early 1990s, with 24 states matching the federal rate and five states setting higher rates.

The Card and Kruger Paradigm Shift

• In 1992, economists David Card (Princeton) and Alan Kruger published a landmark study comparing fast-food employment in New Jersey (wage increase) and neighboring Pennsylvania (no increase).
• Contrary to economic theory, the study found that employment in New Jersey increased relative to Pennsylvania despite the wage hike.
• The findings suggested the existence of "monopsony power," where employers in low-competition markets set wages artificially below the market rate, meaning small wage increases do not necessarily cause job losses.
• This research prompted a global shift toward empirical data collection, influencing China (1994), Britain (1998), Ireland (2000), and Germany (2015) to adopt minimum wage policies.

Conflicting Empirical Evidence and Methodological Nuance

• Disagreements persist regarding whether to track aggregate job numbers or individual worker income, as these metrics do not always align.
• Seattle's 2014 legislation aimed to reach $15/hour by 2021, generating contradictory studies:
  • A 2017 study utilizing aggregate data found that reduced work hours in low-paid sectors led to a net loss in monthly wages for employees.
  • A 2018 study using individual tax records found that low-paid workers earned more on a weekly basis, though some gains were offset by workers shifting to other jobs.
• Outcomes appear dependent on specific sector characteristics, including ease of automation, employer profit margins, and pricing power.

Future Outlook and Political Implications

• President Joe Biden has committed to raising the federal minimum wage to $15 per hour, framing the issue as both an economic necessity for families and a partisan political divide.
• If enacted, this would represent the first national-scale experiment of this magnitude, moving beyond the fragmented state and local policies of the past.
• Economists express caution that such a significant increase could be too high for firms to absorb without causing job losses, though the outcome remains an empirical question rather than a theoretical certainty.
• The potential passage of the $15 wage is expected to reignite intense debate, with economists likely analyzing its impact for years to come due to the lack of historical precedent for such a large national shift.