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If you believe that raising the minimum wage is likely to increase unemployment, to what extent is your belief informed by the theory of supply and demand and to what extent is it informed by direct empirical evidence?

By  "direct empirical evidence" I am referring to empirical evidence that  directly pertains to the relation between minimum wage raises and  employment level changes, not empirical evidence that supports the  theory of supply and demand in general (because transferring that to the  minimum wage context would require one to believe the transferability  of the theory).

Also, when I say "believe that raising the minimum wage is likely to increase unemployment" I am talking about minimum wage increases of the sort often considered in legislative measures, and by "likely" I just mean that it's something that should always be seriously considered whenever a proposal to raise the minimum wage is made. The belief would be consistent with believing that in some cases minimum wage raises have no employment effects.
8 Answers
Vijay Krishnan
Vijay Krishnan, Founder & CTO RoverApp.com, Personalized content recommendation app
I am informed by direct empirical evidence in good measure. The trouble with most minimum wage studies is the following:
1. They usually analyze the effect of a 10% minimum wage increase, rather than compare situations where a noteworthy minimum wage law was suddenly introduced in a situation with no prior minimum wage laws, or a situation when minimum wage was suddenly abolished. Obviously, the effects would be more pronounced and more easily measurable in these cases.

2. They do not restrict themselves to some demographic categories that have a high concentration of low skilled workers (such as teenagers in general or even african-american and hispanic teenagers in the US), where the effects are most pronounced.

3. They also don't attempt to measure changes in purchasing power brought on by increase in prices of certain goods and services.

4. They also don't attempt to show that more wages were paid out to workers in a low wage bracket as a result of the minimum wage. Eg: if the minimum wage were raised from $8 to $8.80 an hour, at the very minimum you at least want to establish with statistical significance that the total wages paid to workers making $8.80 or less, actually increased, after the minimum wage was increased. (in the event that labor was easily substitutable with offshore labor or with capital, or if consumer demand were fairly elastic based on price, you would actually expect this net wage payment to this category of workers to decrease).

    Predictably, it is shoddy minimum wage studies with all these characteristics that Krugman and other Keynesian economists usually cite to support minimum wage laws. These studies often fail to find statistical significance due to the problems I list and Krugman and his gang conclude that this means that there is no effect on employment. This is analogous to me trying to statistically analyze the result of a single chess game between world chess champion Magnus Carlsen and myself that I am bound to lose, finding no statistically significant difference (achieving 95% confidence) in our chess skills due to the small data, and then loudly proclaiming that I am as good as Carlsen!

Some of the pieces of direct empirical evidence that I am informed by are:

1. Germany abolished all price and wage controls a little after world war 2 only to see unemployment numbers quickly plummet.

2. Countries like Hong Kong and Singapore with US like per capita incomes and no minimum wage laws have usually had something like a 2% unemployment rate, way lower than the US.

3. Most Studies of even small 10% minimum wage increase when restricted to teenagers, particularly hispanic and african-american teenagers in the US, invariably show a statistically significant increase in unemployment rates.

4. Thomas Sowell gives more evidence for (3) from history. He points out that in the 40s, with the minimum wage being outdated and not adjusted for over a decade of inflation, african-american teenage unemployment was less than 10% and even less than white teenage unemployment. However in around a decade, with the minimum wage adjusted, african-american teenage unemployment rose to over 40% and and has been around that mark ever since, with minimum wage laws being routinely updated after that. This is not a trivial concern, since plenty of minority youth are unable to get access to good schooling and minimum wage laws eliminate the bottom rung of the employment ladder that would give them the opportunity to build their careers with on-the-job training. Instead with minimum wage pricing them out of the market, such youth are forced to seek employment with gangs, which poses great risks to their lives and also guarantees that they'll soon have criminal records which in turn will disqualify them from many jobs for the rest of their lives and push them towards a life of crime.

    Of course, there are mountains of empirical evidence for the more general theory that price controls of any kind are a bad thing, that demand for pretty much anything is a decreasing function of price and even for the far more general theory that "Government interference in free markets or in consensual transactions between two parties is almost always a bad idea". So I'd say empirical evidence against minimum wage is on as solid ground as anything in economics can be, if one were an honest seeker of truth.

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For people interested in reading well done peer reviewed studies that specifically focus on teen unemployment, minority youth teen employment or unemployment among low skilled workers and invariably find devastating effects even with small minimum wage increases, below are some research papers you can sink your teeth into.

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"When we allow for negative employment effects, we find that the working
poor face a disproportionate share of the job losses. Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor."
Page on vcu.edu

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Dec 1997 peer reviewed study in developing countries (where many people break minimum wage laws) showing that a large degree of loss of jobs in the formal sector that was more high paying, but also more practically subject to the law and a lot of the resulting people working instead in illegal jobs (the informal sector). Much like many disadvantaged teenage youth are unable to find jobs as a result of minimum wage in the US, and show record levels of participation in gangs and criminal activity.
 
Page on ox.ac.uk

April 1995:
Page on nber.org
Extract from the paper: "We find that although increases in minimum wage have small net effects on overall teen unemployment rates, such increases raise the probability that more skilled teenagers leave school and displace lower skilled workers from their jobs. These findings are consistent with the prediction of a competitive labor market model that recognizes skill differences among workers. In addition we find that the displaced lower skill workers are more likely to end up non-enrolled and non-employed"

September 2000:
Page on epionline.org
".......When we focus on the outcomes for certain sub-groups, we find that black and Hispanic teens and teens in central cities are more likely to become idle, not-enrolled and not-employed, as a result of a minimum wage increase. Our study is consistent with some earlier studies in highlighting the detrimental effect higher minimum wages have on potentially vulnerable groups of the teenage population—blacks and Hispanics, and those living in central cities.............."

Summary of 6 publications between 2003 to 2009 (click link to see the reference papers in more detail).
Employment Policies Institute | Minimum Wage
"For every 10 percent increase in the minimum wage, teen employment at small businesses is estimated to decrease by 4.6 to 9.0 percent.1
 According to the U.S. Bureau of Labor Statistics, teen unemployment averaged a record high 24.3 percent in 2009.
 For every 10 percent increase in the minimum wage, estimates show employment may fall as much as 6.6 percent for young black and Hispanic teens ages 16 to 19.2
 African American teen unemployment averaged 39.5 percent in 2009, which is more than four times the national unemployment average and 26 percent higher than last year."
Rob Weir
Rob Weir, An unbiased sample of 1
Both.  This is not really a controversial belief.  Reality matches theory, though admittedly the analysis is difficult and many earlier studies were flawed.

There is a good review of the state of research on this subject in David Neumark's book Minimum Wage.
Erik Fair
Erik Fair, Software Engineer, Investor, skier.

Both.

The "theory" of Supply and Demand is like the Theory of Gravity - empirical observation confirms the theory, so the question presents a False Dilemma.

Labor is not a special scarce resource - it's just like all the others, and just as subject to Microeconomics as all the others.

A higher minimum wage can result to the following:
-fewer employees
-lesser hours for current employees or removed perks like tips, free food/parking, etc.
-increase in prices of products or services sold
-greater purchasing power for workers with the revenue going back to businesses they patronize and products or services they avail of or purchase
-decreased interest in college education since minimum wage jobs are paid almost the same or can be more than what jobs requiring college education pay

In relation to the minimum wage battle, here's an interesting report: Minimum Wage Debate.
Most  ought to be theory-based. An honest read of the evidence offers at best  a split opinion on the question. An honest read of the evidence that  emphasizes comparative study designs should move more towards the view  that it does not increase unemployment. So what you've got left for a  strong opinion on the matter is theory.

The suggestion from Zac that if the theory is false (I assume he means one or a few particular theories where the minimum wage increases unemployment!) all of microeconomics is false is clearly wrong. The theoretical explanations of how a minimum wage wouldn't increase unemployment are equally consistent with microeconomics and none of the very smart people (smarter than either Zac or me, and presumably just as honest) who think it does not increase unemployment have abandoned microeconomics as false. There are a number of ways - consistent with accepted microeconomics - to characterize the functioning of the labor market. To arbitrate between them we need empirical work and the best empirical work suggests the negative impacts on unemployment have been weak or non-existent.
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