While minimum wage increases generally receive substantial public support, economists have generally relied on the above analysis to argue that such legislation will result in an increase in the unemployment rate in low-wage labor markets. In recent years, however, a series of studies by David Card, Alan B. Krueger, Lawrence F. Katz, and others have suggested that small to moderate increases in the minimum wage will have no adverse effects on unemployment (and may even lead to reduced unemployment). There are a number of theoretical models that can explain such results. Among these are:

• monopsony models, and


• efficiency wage models.

A solid body of contemporary research has found no job loss resulting from modest increases in the minimum wage. For example, research by the Economic Policy Institute found that the 1996 and 1997 minimum wage increases did not cause job loss. There was no negative employment effect among either teens or adults. In fact, adults actually experienced a small, though not statistically significant, increase in employment.*
EPI found that raising the minimum wage did not reduce the employment of minorities and women. Raising the minimum wage was associated with statistically significant employment increases among teenage Latinas, less-educated adult women and less-educated adult African American women. For whites and for African Americans overall, the minimum wage increase resulted in neither significant positive nor negative employment effects.
According to a 1999 study by the Jerome Levy Economics Institute, the last increase in the minimum wage did not affect the overwhelming majority of small businesses. Nine out of 10 (89.1 percent) of the small businesses surveyed said the last increase did not have an effect on their employment or hiring decisions.

It has been well documented that the minimum wage destroys jobs, particularly the jobs of low-skilled, young workers. However, there are other equally pernicious side effects of higher minimum wages. Higher minimum wages make it more difficult for people to leave welfare and induce high-school students to drop out.

Dr. Peter Brandon of the Institute for Research on Poverty studied how raising the minimum wage affect the transition from welfare to work. [7] He found that raising it keeps welfare mothers on welfare longer. Mothers on welfare in states that raised their minimum wage remained on welfare 44 percent longer than mothers on welfare in states where it was not raised.[8]

The reason for this result is that raising the minimum wage induces some people to enter the labor market who would not apply if not for the higher level. With a larger labor market, employers choose higher-skilled applicants. Thus, raising the minimum wage hurts low-skilled workers in two ways. First, there are fewer jobs available. Second, with a larger pool of applicants, competition is stiffer. Low-skilled workers have a more difficult time getting those job skills that are crucial to economic well-being.

Another side effect of raising the minimum wage is that it increases the number of high-school students who drop out. [9] Some of these students do not find employment. Another group of students are part of those applicants that compete jobs away from welfare recipients. Dropping out of school is very destructive. High school drop-outs have a very difficult time improving their well-being.

Increasing the minimum wage will do little to improve the conditions of poor Americans. Relatively few of those workers who receive wages at or near the minimum are members of poor families. For those poor who are working, wage increases are substantial and come quickly as they accumulate job experience. Increasing the minimum wage will, however, eliminate entry-level jobs for unskilled workers, making it more difficult for those who want to work to find jobs.