Warning--this post has nothing to do with the environment other than the topic being inspired by a previous post.
Last month, I wrote about obvious headlines in the news. In the discussion that followed, John and I engaged in a debate with a reader over the efficacy of minimum wage increases. John claimed that minimum wage increases cause unemployment. I went a step further to assert that the unemployment would be among the least skilled workers--that is, those most likely to earn minimum wage. One of our astute readers correctly pointed out:
I've seen many economists assert that this connection, in fact, does not exist as you claim. A rather infamous study from New Jersey, for instance. You could at least point out that the direct immediate effect on unemployment is a matter of some dispute.
In reaction to a recent column by Thomas Sowell, A Glimmer of Hope, Ohio State Professor of Economics, J. Huston McCulloch offers a possible explanation for such a finding in a recent Columbus Dispatch editorial...
...it is quite possible that in low-growth states, proposals to raise the minimum wage are resisted by employers, while in prosperous states, where a higher minimum would make little difference, this feel-good legislation breezes through.
As economists we are trained to recognize incentives. Under what circumstance do employers have the incentive to oppose minimum wage increases? When the minimum wage is already binding--that is, when they are already being forced to pay above market wages to employees. These are areas likely to have low employment growth. So in areas of low employment growth--and low wages--employers are likely to vociferously oppose mandatory increases in the minimum wage.
On the other hand, employers are less likely to oppose minimum wage increases if they are already paying market wages above minimum wage. In this case, the minimum wage increase will have no effect on employyment or wages.
So in short we have a situatiuon where minimum wage increases are more likely to pass in areas that have high employment growth. When we observe the data from all states, we may see that higher minimum wages are correlated with higher employment. But, as we know, correlation is not causation. It is possible that high employment growth creates the political incentive--or lack of political resistance--to raise minimum wages, even though the increase will have no noticable effect.
