For over a decade, a massive natural experiment has been quietly dismantling one of economics' most cherished fears: that raising wages inevitably destroys jobs. Brad DeLong amplifies Arindrajit Dube's analysis of this real-world data, revealing a labor market where higher pay floors have lifted earnings without triggering the predicted employment apocalypse. This isn't just academic theory; it is a decade-long record showing that the "job-loss" narrative is a ghost story that refuses to die despite overwhelming evidence to the contrary.
The End of the Textbook Story
DeLong frames this analysis as a necessary correction to the economics profession's stubborn inertia. He notes that while researchers are quick to update their statistical models, they are slow to change their fundamental worldviews. "The labor market is not a competitive machine that will be broken by a minimum wage floor; it is a distorted landscape of power imbalances waiting to be corrected," DeLong writes. This reframing is crucial because it shifts the debate from a hypothetical trade-off to an observation of actual market mechanics.
The core evidence comes from the divergence between 30 states that raised their minimum wages after 2013 and 20 states that remained stuck at the federal floor of $7.25. Dube's data shows that in the "raise states," restaurant wages grew by roughly 7.7% more than in the non-raising states, yet employment levels remained virtually unchanged. DeLong highlights the significance of this finding: "We saw the evidence of market power, and we chose to believe in inelasticity." The author argues that economists have been clinging to outdated models from the 1960s rather than accepting the reality that employers often hold significant monopsony power—the ability to set wages below what a competitive market would dictate.
We should have learned this a long time ago. If we treat the minimum wage as a simple tax on employment, we ignore the deadweight loss of monopsonistic under-employment.
This argument gains historical weight when viewed through the lens of monopsony theory, which suggests that in markets with few employers, workers are paid less than their marginal contribution. By raising the floor, the policy doesn't create inefficiency; it corrects an existing one. DeLong points out that the "Harberger Triangle" of economic waste—the lost value from unfulfilled transactions—is actually created by the absence of a wage floor, not its presence.
The Three P's and Political Reality
The analysis extends beyond simple state comparisons to include border analyses and synthetic control groups, all yielding the same result: pay goes up, jobs stay flat. DeLong explains that when costs rise, businesses absorb them through what he calls "the Three P's": Productivity gains from reduced turnover, Price increases passed to consumers, and Profit margin adjustments. This mechanism counters the simplistic view that higher wages must equal fewer workers.
Perhaps most striking is the political dimension of the data. The study includes 12 states that voted for Donald Trump in 2024 yet still raised their minimum wages, often through ballot initiatives. DeLong notes, "We see the same pattern in the 'raise states' regardless of whether they are Democratic strongholds or states that have passed these measures via real populist revolt and ballot initiative." This suggests the economic benefits transcend partisan lines, driven by local voter demand rather than federal mandates.
Critics might argue that the lack of job losses is a short-term phenomenon that will eventually manifest as automation or reduced hiring in the long run. However, DeLong counters this by pointing to the sustained nature of the data over more than a decade. "The 'minimum wage job-loss apocalypse' that never arrived," he writes, emphasizing that the predicted catastrophe has failed to materialize even as wage gaps widened significantly.
The 'waste' isn't in the higher wage; the waste is in the unfilled positions and the suppressed earnings of workers who are being paid less than their marginal contribution because the market lacks the competitive pressure to do otherwise.
Bottom Line
The strongest part of this argument is its reliance on a decade-long, real-world dataset that directly contradicts decades of theoretical dogma. The biggest vulnerability remains the potential for future market shifts if wage floors rise too aggressively relative to productivity gains in specific sectors. For busy readers, the takeaway is clear: the fear that raising wages kills jobs is not supported by the last 15 years of American economic history.