More than 31 months after “Isaac Sorkin: Don’t Be Too Reassured by Small Short-Run Effects of the Minimum Wage” appeared on this blog, the July 25, 2015 issue of The Economist has caught on to the importance of Isaac Sorkin’s research on the minimum wage. They are similarly late in noticing Jonathan Meer and Jeremy West’s research that appeared in the post “Jonathan Meer and Jeremy West: Effects of the Minimum Wage on Employment Dynamics” and still do not address the critique of that research in “Arindrajit Dube: Jonathan Meer and Jeremy West’s Negative Correlation for Minimum Wages and Employment Growth is a Statistical Artifact.”
The Economist article has a nice pair of graphs showing how much much lower US minimum wages are compared to income or median pay than in Europe (However, the US minimum wage is at a very high level relative to median pay and income in Puerto Rico, with disastrous effects.) The Economist also gives a nice report on Isaac’s latest research with Daniel Aaronson and Eric French:
In a second paper, written with Daniel Aaronson of the Federal Reserve Bank of Chicago and Eric French of University College London, Mr Sorkin goes further, offering empirical evidence that higher minimum wages nudge firms away from people and towards machines. The authors look at the type of restaurants that close down and start up after a minimum-wage rise. An increase in the minimum wage seems to push some restaurants out of business. The eateries that replace them are more likely to be chains, which are more reliant on machines (and therefore offer fewer jobs) than the independent outlets they replace. This effect has not been picked up before because the restaurants which continue to operate do not change their employment levels, so the jobs total does not shift much in the short run.
It always seemed too good to be true when David Card and Alan Krueger claimed that an increase in the minimum wage left employment unchanged or even increased it a little in New Jersey restaurants. There is more and more reason to be skeptical of the reassurance that gave to minimum wage advocates.
Update August 19: Isaac Sorkin points out that Jonathan Meer and Jeremy West have answered Arindrajit Dube and coauthors’ objections in a cogent supplemental appendix that can be found here.