Employment Effects of a Local MInimum Wage: Comment.

In the January 1964 issue of this journal, Professors Maurice C. Benewitz and Robert E. Weintraub calculated the loss in employment within New York City which would follow an increase of the minimum wage to $1.50 from $1.15 per hour. They utilized a very interesting technique; namely, the Cobb-Douglas function. I think these calculations do not, however, present an accurate picture of the actual employment loss which would follow increase in the minimum wage because: (1) their use of the Cobb-Douglas function is improper; (2) assumptions adopted in their study are questionable. This ingenious article fails to provide a reasonably accurate measure of job loss from an increase in the minimum New York City wage to $1.50 per hour due to: (1) failure to make proper use of the Cobb-Douglas function; (2) insufficient analysis of the effect of increase in minimum wage to $1.50 on those already earning $1.50 and up initially; (3) the assumption that product prices do not rise, unlikely to be true for retailing and services; (4) failure to analyze effect of increase in minimum wage on migration of business and jobs out of the city. The general techniques used may, however, be considered one cornerstone of future attempts to measure loss of jobs due to legally imposed business cost increases. Some other cornerstones would be: wage structure analysis, product supply function elasticity analysis, product demand function elasticity analysis, analysis of the time pattern of business migration response to local cost increases.