In my basic econ classes I usually use minimum wages as an example of bad government policy. I tell the class that a binding price floor in the labor market will create a surplus of workers (unemployment). I go on to explain that the situation is worse than that, because the likely victims of this unemployment are those for whom the minimum wage is binding--low-skilled and teen workers. In other words, minimum wages cause unemployment among those they are intended to help.
But any good economist knows that there is plenty of evidence to contradict this. As a reader asked in a past discussion we had on minimum wages:
...are you all essentially ignoring all of the work by David Card that suggests that in many cases minimum wage increases do not have large employment effects?
My gut reaction was always, well, yes, because price floors have to cause surpluses. It's just intuitive and it seems that the evidence is just hiding. Well, it's hiding no longer. Respected labor economist David Neumark, in today's Wall Street Journal, writes:
Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduceemployment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.
Yep, I knew it all along.
