The minimum wage debate – an annual event – is back, as many states have minimum wage hikes taking effect in January. This year, 21 states are raising their minimum wage, with two-thirds due to inflation adjustments and another seven due to legislation or ballot initiatives. The increases range from $0.18 in Alaska to $1.75 in Delaware. In addition, the United States will soon have as vice president J.D. Vance, a Republican supportive of raising minimum wages. He recently sponsored legislation to raise the federal minimum wage from $7.25 to $11.00 over four years.

AAF has spilled a lot of ink over the minimum wage. But the basic story remains fairly simple. Raising the minimum wage does nothing to increase the resources available to pay the higher minimum wage. As a result, employers will have to respond to the mandate in ways that free up the resources to do so: reduce raises for existing workers, raise prices on consumers, and reduce hiring. The latter response is especially vexing because it is tantamount to redistributing from the out-of-work to the employed – a bit perverse, to say the least. All of this is topped off by the fact that the minimum wage is very poorly targeted and does little to alleviate poverty.

More recently, however, an even more nuanced – if not more favorable – view of minimum wage hikes has emerged. In new research, the “labor-labor” substitution notion emerges as important:

When facing a minimum wage, fewer firms made a hire, but those workers they did hire were paid a higher wage. However, the reduction in hiring was not large, even at the highest minimum wage imposed. In contrast, minimum wages substantially reduced hours-worked, across cells.

Read the full article about minimum wage by Douglas Holtz-Eakin at American Action Forum.