Peter Rupert: Minimum Wages — Who Benefits, Who Doesn't

The debate over the effects of minimum wages has a long history. In a very simple Economics 101 supply-and-demand analysis it is shown that there are winners and losers.

The winners are those who have jobs at the new higher rate. The losers are those who have lost their jobs or cannot find one since the quantity demanded of labor at the higher wage has declined.

But how much does employment decline from the imposition of higher wages? It is not such an easy question to answer as there are problems with both measurement and empirical design.

Early Minimum Wage Research

What happens when economists can't agree? Unfortunately, this is the case more often than one would hope.

Should the Federal Reserve lower or raise interest rates? Does rent control help those who are in need? Are tariffs good or bad?

It is not too difficult to find at least some economists on either side of such issues. The minimum wage is no exception.

The research that seems to have caused much of the controversy was published by David Card and Alan Krueger in 1994 in the American Economic Review.

The authors studied the minimum wage increase in New Jersey and compared it to no increase in Pennsylvania by surveying fast-food restaurants. They found that there was no decline in employment and even a slight increase.

In a 2000 response, David Neumark and William Wascher were concerned about the quality of those data and used administrative (payroll) data to re-examine the Card and Krueger findings.

What they found was that employment actually fell.

More Recently …

On April 1, 2024, the California Fast Act (Assembly Bill 1228) was enacted, raising the minimum wage for franchised fast-food restaurants in the state to $20 per hour, a 25% increase over the state's $16 minimum wage.

As one might surmise, studies have come out on both sides of the effects of the minimum wage increase.

Research by Chris Thornberg, founding partner of Beacon Economics, found that employment in the limited-service restaurant sector actually fell by 21,500, using revised data from the California Employment Development Department.

In his March 2025 paper, "Jumping the Gun on the Fast Act," Thornberg explains that "UC Berkeley's Institute for Research on Labor and Employment (IRLE) released a report in September 2024 claiming there had been no significant price or employment impacts from the Fast Act. The Harvard Kennedy School followed up with a similar piece, suggesting there were no effects on hours, scheduling, or benefits."

The point here is that the studies claiming no real change had used preliminary data that did not reflect actual changes, later revealed by the revised data.

Also in 2024, several community groups brought up the idea of raising the minimum wage for agricultural workers to $26 an hour and spoke at a Santa Barbara County Board of Supervisors meeting.

To be clear, there was nothing put forward by the supervisors in this regard. Although not enacted, however, it is possible to forecast what might result from such a change.

Timothy Richards, the Marvin and June Morrison Chair of Agribusiness at Arizona State University and co-editor of the European Review of Agricultural Economics, did exactly that.

In a subsequent economic impact report, he demonstrated the disastrous effects such an increase would have in Santa Barbara County. The report used actual production costs and showed that all growers producing strawberries, broccoli, cauliflower, head lettuce and blackberries would cease production here.

This would result in a direct-output loss expected to be $1.24 billion, and expected job losses of 16,084. The nearby table shows the probability (last column) that an industry would exit production in Santa Barbara County.

Conclusion

It turns out that economic theory actually works! When labor becomes more expensive, companies reduce their demand for that labor.

The industry can shrink but eventually will likely replace labor with capital. Kiosks in fast-food restaurants. Robot baristas. Autonomous ride-hailing vehicles.

The good intentions of the policy to help labor did indeed help those who remained in their jobs but hurt those who lost their jobs.

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