Raising the floor

What harm do minimum wages do?

Three decades of research have led to a major rethink

FOR A LONG TIME economists—whose median income, according to a survey of the American Economic Association (AEA), is $104,000 a year—considered minimum wages to be harmful. A survey of AEA members in 1992 found that 79% of respondents agreed that a minimum wage increases unemployment among young and low-skilled workers. In an often fractious field, that is about as close to a consensus view as can be found. Although many economists recognised that low pay can indeed be a real problem, they argued that no pay was worse.

They were not the only people who thought so. The same argument was used by Republican politicians. In 1968, America’s federal minimum wage stood at its highest level since first being applied in 1938. During the following two decades it fell, in real terms, by 44%. Though Jimmy Carter raised the wage in each of the four years he was president, keeping pace with inflation, Richard Nixon raised it only twice in six years and Ronald Reagan not once in eight. Some state and local politicians, mostly Democrats, tried to offset the fall by raising their minimum wages, creating a patchwork of different levels. The disparities this created allowed detailed empirical research on the policies’ effects, and provided the means by which the economists’ consensus would be undermined.

Not only did this see the conventional wisdom on minimum wages challenged in America; it also saw such policies spread elsewhere. Britain introduced a national minimum wage in 1998…