How does minimum wage affect the unemployment rate?

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. The argument that state minimum wages have had a substantially negative effect on a state's labor market is an extreme reformulation of the perennial statement that minimum wages do more harm than good because they cause many low-wage workers to lose their jobs. While this argument once again prevailed among economists, recent studies with improved methodologies have reached the opposite conclusion. In general, there is no valid research-based reason to believe that state minimum wages cause measurable job losses.

The extreme argument that the loss of jobs is severe enough to be reflected in a remarkably high state unemployment rate is a wild extension of a largely unfounded theory. 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. Due to economic principles, there would still be some increase in unemployment, although not drastic.

Despite a persistently high unemployment rate, Alaska has experienced one of the highest job growth in the country in recent years. Minimum wage increases are good for workers because they're designed to help keep up with the cost of living. In the final version of their study, also published in the American Economic Review, Neumark and Wascher affirm the opposite conclusion to that of Card and Krueger: the increase in the minimum wage in New Jersey probably reduced employment in New Jersey compared to Pennsylvania (Neumark and Wascher 2000, p. The federal government sets the minimum wage to help unqualified workers pay their bills and keep up with the cost of living).

The state lost 46,000 jobs between January 2001 and January 2002, while the unemployment rate went from 4.8% to 8.3%, the largest increase in the country. At the end of 2000, the state unemployment rate was consistently at least one point above the national unemployment rate, where it has remained ever since. 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 scoff 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.; increased productivity; lower rates of errors and accidents; less product waste; and better customer service. Instead, it shows how central the decline of this industry, which was largely unaffected by the minimum wage, has been to recent economic problems.

Increasing the minimum wage helps keep them and their families out of a state of potential poverty. The best data for analyzing the impact of the minimum wage on employment in restaurants is data from the ES-202, which state governments routinely collect for the unemployment compensation program. In particular, those who oppose minimum wage increases at the state level claim that these increases are the cause of weak labor markets, especially in the form of high unemployment rates.

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