Let me start by emphasizing that I believe in the dignity of labor, that workers should receive a livable wage and that people should not be taken advantage of. My upbringing is to blame for this!1
There are many imbalances in world economies due to concentrations of power which do not always act ethically. Raising the minimum wage significantly, however, could very well cause as much pain as it relieves.
Tracking the effects of a change in the minimum wage is difficult because it is but one variable amidst ongoing ups and downs. It cannot be empirically proven or disproven with a tidy experiment. In this article, I’ll look at minimum wages vs. national unemployment starting with 1974 and the unemployment of states with minimum wages above the current federal requirement.
U.S. Unemployment vs. Minimum Wage (both as of Jan. 1 in a given year)
[Unemployment] The erratic nature of unemployment is obvious and trending upward since 2000. Even a best fit, polynomial line to the fourth power is not an impressive fit.
[Minimum Wage] While minimum trend line has a nice positive slope, the extended plateaus of 1981-1990 and 1998-2007 are long periods where the minimum wage was unchanged. During these times, individuals who were both employed and covered by the minimum didn’t lost buying power.
In the first plateau, the unemployment rate spiked after the “freeze” began then returned to a slight improvement at the end of the freeze. Much of the spike was the reaction to the very high prime rate at the end of the Carter administration, the uncertainty brought on by the Iranian hostage situation (Nov. 1979-Jan.1981) and early Reagan fixes which weren’t working. Remember, too, many economic causes and effects don’t occur simultaneously, but with a delay.
The recent unemployment increases was not just due to minimum wage increases, recalling the mortgage explosions and other economic shocks.
U.S. Unemployment vs. Minimum Wage in 1996 Constant Dollars
Minimum wage in constant dollars dropped from 1979-1989. This might be able to take some credit for the unemployment recovery after 1983, but not all. The
U.S. economy in general was doing well along with the typical sign of American
spending, the trade deficit, taking off in 1983-1987.2 Unemployment saw a noticeable increase during 1991-93 after the minimum was raised 13% in April ’90 and 12% in April of ’91 after a nine year freeze. The sharp increases in unemployment started in 2009 after three successive years of 70 cent increases in the minimum wage. May
have a chicken-and-egg situation here. Was the mortgage bust aggravated by rising incomes prompting overzealous lenders to take even more risks or was the lending fiasco’s momentum already too far gone?
Result: More indicative that a higher minimum wage in constant dollars leads to higher unemployment.
Current States With Min. Wage Higher Than the Federal vs. Unemployment3
Washington $9.19 7.5% better by 0.4
Oregon 8.95 8.3 worse by 0.4
Vermont 8.60 4.9 better by 3.0
Connecticut 8.25 8.2 worse by 0.3
Wash. D.C. 8.25 8.4 worse by 0.5
Illinois 8.25 8.6 worse by 0.7
Nevada 8.25 9.8 worse by 1.9
California 8.00 9.8 worse by 1.9
Massachusetts 8.00 6.7 better by 1.2
Ohio 7.85 6.7 better by 1.2
Arizona 7.80 7.9 even
Montana 7.80 5.6 better by 2.3
Florida 7.79 7.9 even
Colorado 7.78 7.5 better by 0.4
Alaska 7.75 6.6 better by 1.3
Rhode Island 7.75 9.9 worse by 2.0
Maine 7.50 7.2 better by 0.7
New Mexico 7.50 6.6 better by 1.3
Michigan 7.40 8.9 worse by 1.0
Missouri 7.35 6.6 better by 1.3
I won’t make a bigger mess with a graph here. The scatter for both the top ten above the federal minimum wage and the top twenty show a best fit line as a curve with unemployment peaking in the $8.30-$8.40 range. Even tossing Vermont as an outlier didn’t help much.
Looking at it simplistically, we see that six of the top eight states above the federal minimum wage have unemployments higher than the national average. Might mean something, but need help from the experts.
Experts With Clinching Arguments
Instead of attempting to restate Walter Williams’ article to avoid plagiarism, I’ll simply quote him directly: “University of California, Irvine economist David Neumark has examined more than 100 major academic studies on the minimum wage. He states that the White House claim ‘grossly misstates the weight of the evidence.’ About 85 percent of the studies ‘find a negative employment effect on low-skilled workers.'”
“A 1976 American Economic Association survey found that 90 percent of its members agreed that increasing the minimum wage raises unemployment among young and unskilled workers.”
“A 1990 survey found that 80 percent of economists agreed with the statement that increases in the minimum wage cause unemployment among the youth and low-skilled. If you’re looking for a consensus in most fields of study, examine the introductory and intermediate college textbooks in the field. Economics textbooks that mention the minimum wage say that it increases unemployment for the least skilled worker.”4
CONCLUSION: While raising the minimum wage may partially address the need for wage justice, it appears to also bring on increased unemployment for those on the lowest rungs of the pay scale, at least for a while. (Unless, of course, a raise in the minimum wage is also accompanied by autocratic restrictions or requirements on business, something the current occupant of the Oval Office does not seem adverse to.)
Nevertheless, it would also not be moral to allow the minimum wage to stagnate for more than a few years. Otherwise, it may start subsidizing corporate profits and the wallets of those fellow citizens already making substantially more than the minimum.
As in any decision involving the economy, it is not as simple as the political suitors of voters make it seem!
1 – “Even if it does not contradict the provisions of civil law, any form of unjustly taking and keeping the property of others is against the seventh commandment: thus, deliberate retention of goods lent or objects lost, business fraud; paying unjust wages [emphasis added]; forcing up prices by taking advantage of the ignorance or hardship of another.” (first half of paragraph 2409, Catechism of the Catholic Church,” Liguori Publications, Liguori, MO, 1994
“A just wage [no added emphasis] is the legitimate fruit of work. To refuse or withhold it can be a grave injustice. In determining fair pay both the needs and the contributions of each person must be taken into account. ‘Remuneration for work should guarantee man the opportunity to provide a dignified livelihood for himself and his family on the material, social, cultural, and spiritual level, taking into account the role and the productivity of each, the state of the business, and the common good.’a Agreement between the parties is not sufficient to justify morally the amount to be received in wages.” (paragraph 2434 of the “Catechism”), a — from Gaudium et Spes, issued on December 7, 1965, the term “man” refers to all mankind, remember this is from a translation of a document written in a formal style
2 – 1983 deficit nearly $58 billion, 1987 almost $152 billion, www.census.gov. Of
course, our trade deficits since 1998 have greatly surpassed those years, but
that’s another story.
3 – States’ minimum wages from the Hamilton JournalNews, 2/17/2013 and unemployment data from www.bis.gov, seasonally adjusted for Dec. 2012
4 – Walter Williams, on Higher Minimum Wages, posted on www.PoliticalMusingsAtTheSunstOfMyLife.wordpress.com Mr. Williams’ article also has a surprising continuation: “As detailed in my recent book “Race and Economics” (2012), during times of gross racial discrimination, black unemployment was lower than white unemployment and blacks were more active in the labor market. For example, in 1948, black teen unemployment was less than white teen unemployment, and black teens were more active in the labor market. Today black teen unemployment is about 40 percent; for whites, it is about 20 percent. The minimum wage law weighs heavily in this devastating picture. Supporters of higher minimum wages want to index it to inflation so as to avoid its periodic examination.”