Do Increases to the Minimum Wage Affect Unemployment?

Much political hay has been made over the years by Republicans and Democrats over the federal minimum wage. Republicans tend to oppose increases, while Democrats tend to favor them. The primary Democrat talking point is that raising it will improve the standard of living for those who work for minimum wage, while Republicans claim those same workers would be hurt due to businesses laying people off to save labor costs.

Now folks, we all know 99% of elected officials in both parties are concerned only with getting reelected. Few if any of them actually give a damn about you and me. It’s all about buying votes. It’s a good bet that minimum wage earners who vote, vote Democrat. And it’s an equally good bet that business owners tend to vote Republican. This is nothing more than another case of the two parties ignoring the facts and telling people what they want to hear.

So what’s the truth? Who is helped or hurt when the federal minimum wage is increased?

Obviously the wage earners are helped by having more money in their pockets, assuming that their employers don’t cut their hours or lay them off. And yes, payroll is among the largest expenses for most businesses. But a business cannot function without it’s workers, so layoffs are far from automatic. According to economists Jonathan Meer and Jeremy West in a¬†2013 paper¬†written for the National Bureau of Economic Research, unemployment itself generally does not increase after a raise in the minimum wage. New job creation however, tends to slow down while employers adjust to the higher labor costs.

In the table and chart below you can see the minimum wage increases and unemployment data from 1947 through 2010. The chart tells the tale. Scroll around on the data and you can see unemployment rates going up and down regardless of what’s happening with the minimum wage. Why? Because many other factors can also have an effect on the economy and therefore unemployment. Tax increases, wars, trade embargoes, oil prices, even widespread severe weather can affect the economy.

And yes, raising the payroll costs for employers can also have such an effect. But before you oppose an increase in the minimum wage keep in mind that minimum wage earners generally represent less than five percent of the workforce. As such, giving them a little raise every few years isn’t going to have a profound effect on the economy. But it just might have a profound effect on someone working two shifts at a fast food restaurant trying to make ends meet.

YearMinimum
Wage
Unemployment
Rate
1947$0.403.9
1948$0.403.8
1949$0.405.9
1950$0.755.3
1951$0.753.3
1952$0.753
1953$0.752.9
1954$0.755.5
1955$0.754.4
1956$1.004.1
1957$1.004.3
1958$1.006.8
1959$1.005.5
1960$1.005.5
1961$1.156.7
1962$1.155.5
1963$1.155.7
1964$1.155.2
1965$1.154.5
1966$1.153.8
1967$1.403.8
1968$1.603.6
1969$1.603.5
1970$1.604.9
1971$1.605.9
1972$1.605.6
1973$1.604.9
1974$2.005.6
1975$2.108.5
1976$2.307.7
1978$2.657.1
1979$2.906.1
1980$3.105.8
1981$3.357.1
1982$3.357.6
1983$3.359.7
1984$3.359.6
1985$3.357.5
1986$3.357.2
1987$3.357
1988$3.356.2
1989$3.355.5
1990$3.805.3
1991$4.255.6
1992$4.256.8
1993$4.257.5
1994$4.256.9
1995$4.256.1
1996$4.755.6
1997$5.155.4
1998$5.154.9
1999$5.154.5
2000$5.154.2
2001$5.154
2002$5.154.7
2003$5.155.8
2004$5.156
2005$5.155.5
2006$5.155.1
2007$5.854.6
2008$6.554.6
2009$7.255.8
2010$7.259.3