Many have claimed that raising the minimum wage will lead to significant job loss. The phrase "that's Economics 101" is thrown around often in this argument, usually to shut down debate. It refers to the abstract, perfect, frictionless model of supply and demand. In this model, if the price of labor goes up-possibly because a floor has been set on the least amount a worker can be paid-the amount of employment goes down. Full stop.

But a wave of research since the 1990s finds little impact on employment due to a higher minimum wage, and some findings suggest that states with higher minimum wages see no negative employment effects at all.

In the world of economics beyond introductory supply and demand, you can find an explanation for why small changes in the minimum wage have little effect on employment. The economist John Schmitt notes three such explanations.

The first is consistent with the Economics 101 model but considers more factors. Here the higher price for labor is simply pushed onto customers. This is what people assume will happen when they say they are willing to pay a few extra cents for a hamburger if doing so will help millions of people escape poverty. In this story, a minimum wage increase would result in a one-time bump in the prices of goods produced by low-wage industries. And in these disinflationary times, a small boost to the price level might help with the greater problems in our stagnating economy.

The second explanation for the small impact of minimum wage increases is institutional. Here people look at mechanisms within firms that adjust to a higher minimum wage-for example, an increase in the productivity of workers that compensates for their extra pay. The minimum wage becomes an incentive for bosses to do a better job managing their employees. Higher earnings also encourage employees to work harder. Economists call this the "efficiency wage": when workers have more to lose, they do their jobs better in an effort to keep their gains.

The third explanation adds two complications to the Economics 101 model. First, it is a pain to search for a new job. Second, employers pick the wages they offer their employees. This sounds obvious, but you won't find it in Economics 101, according to which bosses pay a "market wage." In such a scenario, if your boss paid a dollar less than the market wage, he wouldn't be able to hire anyone at all, and if he tried to pay you a dollar less than the going wage for your labor, you would effortlessly get a new job at that old rate. Yet this is not how things work. People celebrate when they find a job because that search took real effort. It is not like buying a bag of apples or gas to fill your tank, tasks so simple that one can speak realistically of a market price.

This helps to explain why there are so many vacancies in the low-wage job market-vacancies that would be filled if the minimum wage were raised, thereby combating the fear of unemployment that accompanies any discussion of minimum wage hikes. A more generous minimum wage is not essential to hiring for these open jobs; employers could fill vacancies by offering higher wages, but they would in turn have to pay other workers this higher wage as well, meaning that filling vacancies would produce a higher overall wage either way. And since workers have to search for jobs, a higher minimum wage will increase the rate at which employees search for, take, and keep jobs. Empirical work by Arindrajit Dube, T. William Lester, and Michael Reich has found that a higher minimum wage leads to less turnover in low-wage jobs. This effect is visible in the international data as well.