Minimum Wage and the Retail Sector

More support for the idea that raising the minimum wage doesn't hurt employment.

John Addison, McKinley Blackburn of the University of South Carolina and Chad Cotti of the University of Wisconsin-Oshkosh look at how increases in the minimum wage changed the job environment in those retail sectors that tend to pay closest to the minimum.

Using data between 1990 through 2005, they find that wage hikes did not lower the number of jobs. Perversely, so to speak, increased minimum wage actually increased job growth.

Why might this be the case? The evidence points to increased demand thanks to higher wages:

An alternative explanation for the pattern of findings across different retail trade sectors is that minimum wages also have effects on product demand. We find evidence consistent with such an impact from sectors such as convenience stores, alcoholic-beverage stores, and hobby- type stores - all of which tend to have estimated minimum-wage employment effects that are positive, even though in most cases the prevalence of low-wage workers in these sectors is not particularly high. If minimum-wage increases do tend to increase the purchasing power of low- wage workers, then this pattern of product-demand shifts would seem likely. We readily concede that our evidence is at best suggestive in this regard, and that a more complete evaluation of this explanation requires additional data on actual sales in these sectors. Economists researching minimum-wage impacts have tended to neglect possible product- demand effects, perhaps on the basis of a theoretical presumption that these would have to be small. Albeit not conclusive, the evidence supplied here suggests that this dismissal may be unwarranted.