How does an increase in minimum wage affect unemployment?

At the same time, an increase in the minimum wage increases business costs and the amount of labor demanded decreases (companies hire fewer workers). There are now more people looking for work than are available, leading to unemployment. Raising the minimum wage carries the risk of increasing unemployment, depending on the increase in the wage. The thought process is that raising the minimum wage would increase costs for companies, causing them to hire fewer workers.

Extensive research refutes the claim that raising the minimum wage causes an increase in unemployment and the closure of businesses. See the following list of research conducted since the 1990s. Simply using the dollar amount of the minimum wage rate in each state does not take into account the different wage distributions between states. During the early years of Ronald Reagan, unemployment rates increased as the minimum wage fell, and then they followed a similar trend throughout the rest of his administration, falling and rising overall for the most part, except for a sharp fall in unemployment in the mid-to-late 1980s.

Ultimately, the difference between the final conclusion of Neumark and Wascher and that of Card and Krueger may interest labor economists and statisticians, but not to low-wage workers or to policy makers. However, the number of states with minimum wages above the federal rate has more than doubled since the last time the federal government raised the minimum wage in 1997. In addition, the industries most affected by the slowdown in employment growth in Oregon were not the industries that would likely be heavily affected by the increase in the minimum wage. While critics are also quick to argue that rising labor costs will affect consumers through rising prices of goods and services, price increases will not be as disastrous as some claim. Even more revealing is that, after reviewing the results of the second study by Card and Krueger, which used government data and combining them with their own findings, Neumark and Wascher hide that they can only decisively conclude that “the increase in the minimum wage in New Jersey did not increase employment in fast food in that state (Neumark and Wascher 2000, p.).

Numerous studies have put the competitive model to the test when examining the impact of minimum wages on employment. The first column of Table 2 shows the results of the regression of employment growth at the state level between 2000 and 2003 on the participation that gained close to the minimum in force in each state in 2003.13 A negative and significant coefficient in the minimum wage variable would suggest that high minimum wages are associated with a more serious loss of employment. In fact, there were several periods in which unemployment was at some of its lowest levels, while employees also enjoyed high levels in adjusted minimum wage rates, such as the mid-1940s, the late 1960s and in our current era. For example, in newspapers in the three states, Craig Garthwaite, research director of the Employment Policy Institute (EmpI), stated: “Perhaps it is no coincidence that the three states with the highest minimum wages in the country, Oregon, Washington and Alaska, are among the five states with the highest unemployment rates in the country.

One key industry that has been particularly affected is that of manufacturers of semiconductors and other electronic components. First, the increase occurred during a stagnant labor market, so it is unlikely that the effects of the increase in unemployment would be marred by a growing economy. In addition to what legislators are doing, some large employers have set out to establish minimum wages for the entire company in recent years. Similarly, the pattern of employment growth by state shows little relation to whether a state has a minimum wage.


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