For more in-depth analysis and description of methodology, click here.
The easy availability of government data on the internet allows unprecedented access to a vast array of information that can be useful for policy-related research. Readers, however, should view empirical research that has not been subjected to peer-review with a skeptical eye. Empirical evidence that purports to repudiate the law of demand should be scrutinized especially carefully.
A recent blog post  by the Center for Economic Policy Research (CEPR) attempts to reinforce the argument that raising the minimum wage will have little, if any, detrimental effects on employment. Using data from the Bureau of Labor Statistics (BLS), the CEPR empirically demonstrates that 12 out of 13 states that raised their minimum wage in 2014 witnessed employment gains. This blog post was re-blogged by USA Today and numerous other websites in the blogosphere.
While certainly eye-catching, the CEPR’s analysis bases its conclusion on a flawed methodology and incorrect calculations.
Our examination of minimum wage increases suggests that employment in low wage jobs may have declined by 1.43% over the past 10 months in states that increased their minimum wages in January. While our results are suggestive and not conclusive, we use an approach and methodology that is more consistent with academic studies of minimum wages.
First, while the CEPR chose to analyze employment changes in every state that increased its minimum wage in 2014, we analyze states that raised their minimum wage via new legislation and not those that raised their minimum wage via automatic annual adjustments for inflation. This allows us to consider control and test periods for these states. Using this criterion, the tri-state area states – New Jersey, New York, and Connecticut – remain as our focus.
Furthermore, the CEPR chose to analyze aggregate employment growth in every industry. However, a more thorough analysis requires a more nuanced approach –high wage industries and low wage industries are affected differently by the minimum wage. A higher minimum wage would not greatly affect employment rates in high wage industries but would be expected to have a more substantial impact in low-wage industries, as employers cut headcount in order to adjust to higher mandated wages.
Given these observations, we conducted an analysis of a low wage industry, Limited-Service Restaurants, and its employment growth rates in the tri-state area versus the rest of the U.S. before and after minimum wage increases using BLS data. To control for economic conditions that might affect employment growth, we analyzed employment growth in the Limited-Service Restaurants industry relative to employment growth in a high wage industry, Professional and Business services: