Typical minimum wage increases have been relatively modest, and because most have not been indexed to a measure of inflation
paraphrase ‘ Typical minimum wage increases have been relatively modest, and because most have not been indexed to a measure of inflation, they have represented a temporary increase in the cost of labor facing employers. The literature has typically studied these increases with a focus on their short-term (often contemporaneous) employment effects. But for an increase as large as 107 percent (and especially such a large increase that would also be indexed to inflation), it is reasonable to be concerned about longer-term, longer-lasting effects. One reason to be concerned is that minimum wage employment effects could be driven in part by the capital-labor ratio at the sector level. If that ratio takes time to adjust—perhaps because adjustment is driven in the main by firm entry and exit— then the long-run effects of minimum wages could be substantially larger than the short-run effects (Aaronson et al., 2018; Sorkin, 2015). More generally, since productivity is the primary (but not exclusive) determinant of wages,6 then the minimum wage can be thought of as a regulation designed to exclude workers below a certain productivity level from formal employment. There are many reasons why the employment rate for adult college graduates over the past three decades has averaged around 75 percent while the rate for adult highschool dropouts has averaged roughly 40 percent. But one of them is likely labor market regulation, including the minimum wage. The evidence on these longer-term effects is less developed and the effects are harder to estimate, but it is reasonable to speculate that they might be larger than short-run effects. If so, then that is another reason to be concerned about a $15 minimum wage.’
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