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Wal-Mart Stores, Inc. (WMT): Minimum Wage, Maximum Frustration

Two economists from the London School of Economics looked at different data and used a different statistical technique to show that, indeed, raising the minimum wage does reduce employment, particularly among teenagers.

Andrajit Dube, then at U.C. Berkeley, looked at yet another set of data and found “strong earnings effects and no employment effects of minimum wage increases.”

Three separate economists asked fast-food restaurants in Georgia and Alabama how they would react to minimum-wage increases implemented between 2007 and 2009. Fifty-three percent said increasing employee performance standards was very important to deal with the wage hikes. Twenty-nine percent said they’d cut weekly hours of some employees. Eight percent said they’d reduce headcounts.

Bottom line: It’s a more complicated issue than we make it out to be.

Here’s what we do know. Adjusted for inflation, the federal minimum wage (currently $7.25 per hour) has declined sharply over the last forty years:

Source: Bureau of Labor Statistics, Federal Reserve, author’s calculations.

But the problem with a chart like this is that it masks differences in cost of living throughout the country. Some states and cities have their own minimum wages, but differences in pay are often swallowed by differences in costs. The Bureau of Labor Statistics’ Cost of Living Index shows that it costs an average of 87% more to live in Honolulu than it does Cedar City, Utah, but minimum wages in the two cities are the same. Whether a worker finds a wage “fair,” or how likely he or she is to find a minimum wage worth working for, varies wildly by location.

In the end, the problem with economists looking at the minimum-wage debate is that the issue is far more political than it is economic. And alas, politics being what they are, there are few agreements, and the only constants are frustration and disagreement.

The article Minimum Wage, Maximum Frustration originally appeared on and is written by Morgan Housel.

Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST). The Motley Fool owns shares of Costco Wholesale.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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