How does minimum wage affect the unemployed?

Raising the minimum wage has positive effects, such as lifting people out of poverty and increasing the incomes of individuals and families; however, raising the minimum wage can also lead to an increase in unemployment, depending on the wage increase, because employers would seek automation instead of hiring workers. If workers lost their jobs due to an increase in the minimum wage, how long would they be out of work? At one extreme, an increase in the minimum wage could leave a small group of workers out of work indefinitely, so that they would never benefit from higher wages. At the other extreme, a large group of workers could enter and leave employment regularly, experiencing brief periods of unemployment, but receiving higher wages during the weeks when they were employed. If wages grow faster than the CBO projects, salaries in the coming years will be higher than expected by the CBO, and increases in the federal minimum wage would have less effect.

The effects on wage rates include increases in wages for workers who would have earned slightly more than the proposed minimum wage in the absence of the policy. While many studies do not find that an increase in the minimum wage causes an increase in unemployment, Clemens argues that these studies do not use models that are sufficient to capture other changes in social welfare that could cause an increase in the minimum wage. However, low-wage workers who lost their jobs would see their incomes decrease and, in some cases, their household income would fall below the poverty line. 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.

While some economists believe this explanation, several studies have found that an increase in the minimum wage changes little or nothing in employment. First of all, the CBO now projects faster nominal wage growth under current law, so any given increase in the minimum wage would generally have a smaller effect on wages and, therefore, on employment and household incomes. Users of this interactive tool can leave the minimum wage unchanged after the phase-in period has ended, or change it in two ways. Users can also create customized policy options to examine how different approaches to changing the minimum wage would affect people's incomes, employment, household incomes, and poverty.

Whitman School of Management: “The minimum wage exists today to satisfy purely political objectives, because it has no economic basis. Workers whose hourly wage is between the proposed minimum and that amount plus 50 percent of the increase in the federal minimum wage above the previously applicable minimum wage (federal, state, or local). 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. Users of this interactive tool can index minimum wages according to the consumer price index (CPI, a common measure of the cost of living) or index minimum wages according to the average hourly wage.

Clemens also cites a study that argues that minimum wage increases can be regressive because a large proportion of the budgets of low-income households go to products and services manufactured by minimum wage workers, such as restaurants. .

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