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title: "Minimum Wage Increases and Employment: What the Evidence Shows" abstract: "Standard economic theory predicts that minimum wage increases reduce employment by raising the cost of labor. The empirical evidence is considerably more complicated. A landmark body of research beginning with Card and Krueger's 1994 study of fast food employment in New Jersey and Pennsylvania found no evidence of job losses following a minimum wage increase, contradicting the classical prediction. Subsequent research using improved methods has found that the employment effects of minimum wage increases vary by the size of the increase relative to local wages, with moderate increases having small or negligible effects and very large increases having larger negative effects particularly for teenagers and low-skilled workers." topic: economics author: nonacademicresearch.org Editorial date: 2026-05-09

Minimum Wage Increases and Employment: What the Evidence Shows

Abstract

Standard economic theory predicts that minimum wage increases reduce employment by raising the cost of labor. The empirical evidence is considerably more complicated. A landmark body of research beginning with Card and Krueger's 1994 study of fast food employment in New Jersey and Pennsylvania found no evidence of job losses following a minimum wage increase, contradicting the classical prediction. Subsequent research using improved methods has found that the employment effects of minimum wage increases vary by the size of the increase relative to local wages, with moderate increases having small or negligible effects and very large increases having larger negative effects particularly for teenagers and low-skilled workers.

Background

The minimum wage is one of the most studied labor market policies in economics. Classical supply-and-demand analysis predicts that a minimum wage set above the market-clearing wage will reduce employment: employers facing higher labor costs will hire fewer workers, substitute capital for labor, or reduce hours. For decades this prediction was taken as a near-consensus finding in empirical economics.

The empirical debate shifted dramatically with Card and Krueger's 1994 study, which used a "difference-in-differences" design to compare fast food employment in New Jersey (which raised its minimum wage) with Pennsylvania (which did not). They found employment grew slightly faster in New Jersey than in Pennsylvania, the opposite of the classical prediction. This sparked a methodological debate about how to estimate minimum wage employment effects that continues to this day.

The Evidence

Card and Krueger and the Early Empirical Revolution

Card and Krueger (1994, American Economic Review) compared approximately 400 fast food restaurants in New Jersey and Pennsylvania before and after New Jersey raised its minimum wage from $4.25 to $5.05 in 1992. They found a small positive employment effect in New Jersey relative to Pennsylvania — directly contradicting the classical prediction.

The study was immediately controversial. Neumark and Wascher (1995) re-analyzed payroll data (rather than telephone surveys used by Card and Krueger) and found negative employment effects. Card and Krueger responded with a second study (2000, American Economic Review) using Bureau of Labor Statistics payroll data and again found no evidence of employment losses.

This methodological dispute highlighted that the results are sensitive to which control group (comparison states or counties), which data source, and which specification is used.

The Seattle and CBO Natural Experiments

Seattle's phased increase to $15/hour, one of the largest minimum wage increases in U.S. history, has been the subject of intensive study.

Jardim et al. (2017, NBER Working Paper, subsequently published in Quarterly Journal of Economics) used detailed administrative data on individual worker hours and wages in Washington state and found that the increase reduced hours worked at the low end of the wage distribution by approximately 9%, reducing low-wage workers' earnings by $125/month on average. This was a notably negative finding.

Dube et al. (2019, Review of Economics and Statistics) using a different methodology and county-level comparison groups found smaller negative effects on hours and no significant negative effect on restaurant employment in Seattle. The difference between these studies illustrates how much method choices matter: the Jardim et al. study could control for individual workers changing jobs (not just aggregate employment) while the Dube et al. study had stronger comparison group selection.

The Congressional Budget Office (2021) estimated that a federal $15 minimum wage would reduce employment by approximately 1.4 million workers while lifting 900,000 workers above the poverty line — a trade-off that shifts some workers to higher wages while pricing others out of employment.

The "Bite" Effect: Relative Increases Matter

A consistent finding across studies is that the employment effects of minimum wage increases depend on how large the increase is relative to the local prevailing wage — the "bite" of the minimum wage. Dube (2019, NBER Working Paper) synthesizes the evidence and finds that moderate minimum wage increases (those that raise the minimum to approximately 50–60% of the median local wage) have small and statistically uncertain employment effects, while increases that push the minimum above 70–80% of the median wage begin to show more consistent negative effects.

This contextualizes the disagreement in the literature: studies examining large minimum wage increases in high-wage cities (San Francisco, Seattle) find larger negative effects than studies examining small federal or state increases in lower-wage regions.

Effects on Other Outcomes

The employment effect is one outcome among many. Dube (2013, Review of Economics and Statistics) found that minimum wage increases significantly reduced family poverty rates. Cengiz et al. (2019, Quarterly Journal of Economics) analyzed all U.S. minimum wage increases from 1979–2016 and found that minimum wage increases raised income at the lower end of the wage distribution with minimal job losses, for increases up to roughly 60% of the median wage. For larger increases, positive effects on worker income were partially offset by employment reductions.

Counterarguments

Neumark and colleagues continue to find consistently negative employment effects in their research, particularly for teenagers and workers without high school degrees — groups most likely to be employed at or near the minimum wage. They argue that the apparent null effects in much of the literature reflect inappropriate comparison groups that do not adequately control for pre-existing employment trends.

Some economists also argue that employment effects are not the only concern: even small employment losses represent very large welfare losses for the specific workers who lose jobs, particularly if those workers are already economically marginal.

What We Can Conclude

The evidence does not support the classical prediction that minimum wage increases robustly reduce employment. For moderate increases relative to local wages — up to roughly 60% of the local median wage — the employment effects appear to be small and statistically uncertain, while income effects for low-wage workers are consistently positive.

For large minimum wage increases — particularly those that push the minimum close to or above the local median wage — negative employment effects become more consistent and larger in magnitude. The key lesson is context-dependence: a $15 federal minimum wage would have very different effects in Mississippi (where it would substantially exceed the median wage) than in California (where the minimum was already approaching $15).

References

• Card, D., & Krueger, A.B. (1994). Minimum wages and employment: A case study of the fast-food industry in New Jersey and Pennsylvania. American Economic Review, 84(4), 772–793.
• Card, D., & Krueger, A.B. (2000). Minimum wages and employment: A case study of the fast-food industry in New Jersey and Pennsylvania: Reply. American Economic Review, 90(5), 1397–1420.
• Cengiz, D., et al. (2019). The effect of minimum wages on low-wage jobs. Quarterly Journal of Economics, 134(3), 1405–1454. https://doi.org/10.1093/qje/qjz014
• Congressional Budget Office. (2021). The Budgetary Effects of the Raise the Wage Act of 2021. https://www.cbo.gov/publication/57018
• Dube, A. (2013). Minimum wages and the distribution of family incomes. American Economic Journal: Applied Economics, 11(4), 268–304.
• Dube, A. (2019). Impacts of minimum wages: Review of the international evidence. HM Treasury. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/844350/impacts_of_minimum_wages_review_of_the_international_evidence_Arindrajit_Dube_web.pdf
• Jardim, E., et al. (2022). Minimum wage increases and individual employment trajectories. Quarterly Journal of Economics, 137(4), 2415–2465. https://doi.org/10.1093/qje/qjac016
• Neumark, D., & Wascher, W. (1995). Minimum wage effects on employment and school enrollment. Journal of Business and Economic Statistics, 13(2), 199–206. https://doi.org/10.2307/1392372