Does Increasing The Minimum Wage Increase Unemployment? 60 Years Of Data Says ‘No’

Author: Wes Williams September 28, 2013 7:40 pm

 

 

Contrary to Republican claims, a higher minimum wage does not increase unemployment. In fact, the result is often quite the opposite.. Graph from the U.S. Bureau of Labor Statistics.

The Republican mantra about the minimum wage is that it is a “job killer.” Daniel Mitchell, of the libertarian Cato Institute, exemplified right-wing thought on the topic when he wrote in 2010


A closer look at the unemployment [nearly 10 percent unemployment rate] suggests that minimum wage laws also deserve a big share of the blame…businesses are not charities and that they only create jobs when they think a worker will generate net revenue. Higher minimum wages, needless to say, are especially destructive for people with poor work skills and limited work experience.
The minimum wage was signed into law by President Franklin Roosevelt in 1938. In one of his famous “fireside chats” Roosevelt made this observation:

Do not let any calamity-howling executive with an income of $1,000 a day, … tell you … that a wage of $11 a week is going to have a disastrous effect on all American industry.

If we follow Republican rhetoric on the topic, it would be logical to expect an increase in unemployment after every increase in the minimum wage. But historically is that what has happened? A look at increases in the minimum wage over the past 60 years compared to the national unemployment rate reveals the answer.

What REALLY happens to the national unemployment rate when we raise the minimum wage?

Sixty five years of data reveals that claims made about the effect of increasing the minimum wage on unemployment have no basis in fact. The best possible argument that opponents of the minimum wage can make is that it has no effect one way or another on unemployment. However, the historical data suggests that increases in the minimum wage may have a positive effect on unemployment, as low wage workers find themselves with more disposable income following a minimum wage hike — money which is largely put right back into the economy.

1950 – minimum wage nearly doubles, unemployment decreases by more than half

In 1948 and 1949, the unemployment rate ranged from a low of 3.4 percent in January 1948 to a high of  7.9 percent in October 1949. At that time the minimum wage was 40 cents an hour, where it had been since October 1945. January 1950 saw the minimum wage almost double, to 75 cents an hour. A look at unemployment data reveals that not only did unemployment not increase after this large increase in the minimum wage, it declined, from 6.5 percent in January 1950, to a low of 3.0 percent in May 1951.

1956 – minimum wage goes up, unemployment goes down

During the 1950′s there was only one more increase in the minimum wage; on March 1, 1956 it was increased from 75 cents an hour to one dollar an hour. The unemployment rate was 4.2 percent the month this increase was enacted. The unemployment rate did not spike in response, and one year later unemployment had declined to 3.7 percent.

1960-1969 – a series of minimum wage increases, employment stays the same or declines

The 1960′s saw a number of increases in the minimum wage, and by the end of the decade it stood at $1.60. Every time the minimum wage increased, the unemployment rate remained the same, or even declined slightly in the months that immediately followed the increase.

1970-1975 – the ONLY exception for minimum wage hikes and unemployment

The only exception was in 1970, where unemployment ticked up slightly following the February increase in the minimum wage, remaining between 5.0 and 6.0 percent from July 1970 through the end of 1972. Another increase, to $2.00 an hour, went into effect in May, 1974. As in 1970 the unemployment rate bucked the historical trend, and increased, to a high of  9.0 percent in May, 1975. However, this was largely due to the energy crisis and a significant recession, and had little if anything to do with the minimum wage increase.

1975-1976 – pay goes up, unemployment stays level then declines

Unemployment remained high during 1975 and 1976, but there were no spikes caused by the minimum wage increases that took effect on January 1 of each of those years. In fact, in 1976 unemployment declined for several months following the minimum wage hike.

1978-1981 – unemployment stays level with yearly minimum wage increases

January 1978 through January 1981 saw annual increases in the minimum wage, and it stood at $3.35 an hour at the beginning of the Reagan administration. Once again, there was no spike in unemployment in the months following this increase. Instead, unemployment remained steady or declined slightly in the first few months of each of those years.

1990 – minimum wage increases have no effect on unemployment

American workers did not see another increase in the minimum wage until April, 1990, when it was raised to $3.80. Once again the unemployment rate barely changed until the beginning of the recession in mid-1990, when it began to increase. The country was still in recession when another increase went into effect in April, 1991, and once again the unemployment rate moved very little in response.

1996-1997 – minimum wage rises, unemployment drops

The minimum wage increased again in October 1996, going to $4.75 an hour. A small uptick in the unemployment rate that followed quickly turned around and by the time of the next minimum wage increase, in September 1997, unemployment had dropped from 5.2 percent to 4.9 percent. Following this increase, unemployment began a downward trend that lasted until the end of 2000. At the beginning of the George W. Bush administration in January 2001, the unemployment rate was 4.2 percent.

2006-2009 – wage hikes barely move the needle on unemployment

There were no more increases in the minimum wage until after Democrats regained control of congress in the 2006 election. The minimum wage increased in late July of 2007, 2008, and 2009. Yet again the increases barely moved the needle on unemployment. Given that by the middle of 2009 the country was fully in the grips of the financial crisis and the “great recession,” the minimum wage increase that year should have produced massive unemployment, if Republican claims are followed to their logical conclusion. What happened? Unemployment moved from 9.6 percent in August 2009 to a high of 10.0 percent that October, before once again beginning to decline.
Data for this story were taken from the following sites:
U.S. Department of Labor
U.S. Bureau of Labor Statistics