The Minimum Wage Is a Free Lunch With Hidden Charges

One of the biggest shifts in economic thinking in recent decades has involved minimum wages. In the 1970s and 1980s, the consensus among academic economists was that they destroyed jobs. Then empirical work in the 1990s began to show that this wasn’t necessarily true, with studies of the low-wage fast food industry finding no negative impact on employment from minimum-wage increases. These inspired many critiques and counter-studies that did find negative employment effects. But overall, “a rising fraction of researchers” has concluded “that the employment effects of moderately sized minimum wage increases are quite close to zero,” minimum-wage skeptic Jeffrey Clemens of the University of California at San Diego conceded in 2021.

Given that the wage effects of raising the minimum wage are virtually always positive, this makes doing so look like the supposedly nonexistent free lunch. It’s certainly popular with the American public, with 76% currently in favor of increasing the federal minimum wage from $7.25 to $9 an hour, according to Gallup, and 62% in favor (as of 2021) of a much bigger increase to $15, according to the Pew Research Center. And while there appears to be no chance of either happening with Republicans in the majority in the House, the Economic Policy Institute reports that 22 US states and 38 cities and counties raised their minimum wages this month. The highest state minimum wage is now Washington’s $16.28, and the highest local one is $20.29 (albeit for large employers only) in the Seattle suburb of Tukwila.