Does A Minimum Wage Increase Cause Unemployment????

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I’m in a discussion on this very topic on facebook. I’m going google this right now to see what I can find. This is the phrase I used to research this topic – “does  minimum wage increase unemployment”.  Each of the articles I link to should have links to statistical analysis to bolster their case, in which case the hyperlink to the article will be labeled in capital letters. If the link is in non-caps, then the piece is considered opinion, which does not have the same weight.

On the “Yes” side:

EMPLOYMENT POLICY INSTITUTE: The date is not listed, but most of the data cited is from 2008 or before. This is the strongest article on the “Yes” side I’ve come across so far. They do provide several links to back there assertion. However, almost all of the links are from their own publishing arm, and most of those are critiques of papers that lead to different conclusions and the don’t provide links to those actual studies they are critiquing.

Plus, the topic of the article is specifically teen unemployment. Here are their solutions to increasing teen employment:

  • Index the minimum wage to go down if economy or prices shrink
  • Expand training wage laws. A training wage is lower than the minimum wage and allows an employer to pay an employee less than the minimum wage during a training period in which an employee learns job-related skills. Currently, 20 states do not have a training wage.
  • Suspend minimum wage requirements in times of economic distress.

I’m fairly sure this isn’t going to do anything to increase the circulation of money in the general economy. It might be good for the employers, on paper anyway, but it doesn’t put more money in the hands of the employee, who are the ones who spend money and buy the stuff that puts money into the hands or the employer and keeps them in business.

U. S. News: Feb, 2013 – Opinion. No links.

Fox Business. Feb, 2013. Opinion. No links. Not only does it not link to any statistical data, but it shows a scary looking graph at the conclusion of the article that seems to suggest the extreme unemployment that occurred at the onset of the Great Recession was “caused” because the federal minimum wage was raised from $5.15 to $7.25 during the period right when the great recession hit.

While the point is valid that the mandated minimum wage increase certainly didn’t help at a time when the economy was sliding into the worst recession of 70 years,

On the “No” side:

BUSINESS INSIDER, Feb, 2011.

BUSINESS FOR A FAIR MINIMUM WAGE, Date is not clear, but there are several links to studies, and the most recent is Feb 2013

And then there is this WASHINGTON POST article, which is all over the place! I like that. It’s probably the most honest of all the links I posted, because it’s not trying to take a position, but simply laying out the information, and also linking to studies and info that supports each side.

Here is, to me te most important piece of information:

Because the minimum wage isn’t indexed for inflation, it’s hard to do year-to-year comparisons using the statutory, nominal dollar amounts. But if you adjust for inflation, you see that the minimum was around $10 an hour in current dollars in the late 1960s, and even in the 1980s was above where it is today, as this chart Sarah posted last night drives home.

 

This is maybe the meat of the whole argument. If the minimum wage does not carry the same economic weight that it did even in the 1970’s or the Reagan years, and we have more and more families.

Note: The move to increase the minimum wage is picking up steam. Even Kentucky is getting in on the act. It will be interesting to see where this all goes.

PS. Here is another pro-raise-the-minimum-wage entry, this one from The Daily Beast from December of last year. The chart in this one goes back even farther than the Post, all the way back to the beginning of the minimum wage:

131206-zadrozny-graph2

It notes:

While rejecting every study with more conservative conclusions might be a reach, Obama isn’t the only one who thinks raising the wage is worth a negligible effect on the job market. The tide seems to be turning toward the left. Currently, 19 states and D.C. have set the minimum wage higher than the federal rate. New Jersey’s recent vote for a wage hike will go into effect next year and make it the 20th.

A look at unemployment numbers in these states also suggests that those with higher minimum wages aren’t suffering disproportionately from low job numbers. The correlation between states’ minimum wage and unemployment is a low .3, meaning a high minimum wage doesn’t really affect the unemployment rate. Only eleven states with minimum wages over the federal rate had higher unemployment in October (the most recent data available) than the record low national average of 7.0.

I want to stress. There are studies that do show a negative employment. This one by Texas A&M Alum John Meers and Jeremy West is but one example. But it has flaws.

The Meer / West study has a couple of flaws.

One, it doesn’t follow a specific time period after minimum wage increases to see the result of the wage increase over, say, a one year time period. They purposely exclude it. It covers the period of 1979 to 2010 as a whole, which blurs all sorts of employment trends together, thus you get no clear signal of the immediate effect of minimum wage hikes on the job market. The better way to study this is to look at employment a year before the wage hike, and then, say, two years after. This type of study is better done in a micro-economic framework to show specific cause and effect. This study blurs everything together and points to minimum wage as a causal factor, when it is more of a correlation within the frame work of this study.

They also don’t look at a specific segment of employment, naming, the specific segment we are discussing, the lower pay segment. That is where you’ll have the greatest effect.

Further, almost all of their entire data set, from 1979 to 2010 takes place during the 30 year period where supply-side policies are in place. This entire business mindset gives employers incentives to cut into employee work hours to maximize profits. To be sure, there are times when businesses must fire and reduce staff for the business to stay open. But the supply side mentally encourages it. It would be informative to show the same study expanded or split into two segments, one showing employment dynamics and minimum wage increases before 1981, and after.

There will be more to add. But there is so much stuff to do right now… Opportunity cost you know!  If I keep writing this post – which I could do all day… I LOVE economics!…  I could go write and work on my music, which is really more important!

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