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Minimum Wage Followup

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July 16, 2009 – Comments (6)

In an earlier post on minimum wage I challenged the claim that minimum wage increases, increase unemployment.

Worse, I even suggested it might create jobs. Twenty six replies later, plus a Whereaminow blog and its additional 26 replies later, guess what.

The evidence is inconclusive. Studies of the claim that it costs jobs, just as the claims that is does not, are not conclusive. Although IMHO and certainly not Dave's, the credible data suggests a slight increase in jobs, or nothing. For those who would diligently look for themselves, here is a link to a compilation of serious work on both sides of the issue. Some of it is junk, some very good.

Because I promised a follow-up post to my first, with additional information on my data, here it is.

I knew, when I first decided to check the claim of minimum wage related job loss, that some States have higher than Federal minimum wage laws. These States are unaffected by Federal minimum wage changes. I decided that I could compare States that were affected by Federal minimum wgae increases against those that were not. I decided such a method would help, just a little, control for the impacts of trade law changes and macroeconomic events and differences in State economies.

Fortunately our friends at Google supply a chart of State unemployment with the ability to compare multiple States at the same time.

http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&idim=state:ST480000&q=texas+unemployment+rate+chart

I selected a whole bunch of States and compared them side by side, and for the most part the unemployment rates of each State matched pretty closely. Their unemployment increased and decreased together, suggesting that any difference in State laws or economies or wage controls were insignificant.

Not satisfied that I was correct enough, I decided to prove I was even correcter. I selected two States, one with Federal minimums and one with self imposed higher minimums to compare. I chose NY and Texas, the second and third largest economies in the Nation.

Three times the Federal Gov't forced Texas to raise minimum wage, and three times Texas unemployment was better than NY.

Rather than look any deeper, I shared my results, mocked their weakness and went to other tasks.

When I returned there was some discussion, mostly in agreement with me that my data was insufficient to prove anything, and also some religious fanatics.

The sensible discussion included theorising a variety of other possibilities for Texas outperformance. Since they did not check their theories, I ignored their theories and checked some of my own.

it is this additional data that I said I would post about. And as I said, it is not "all that"

Texas and NY unemployment matched each other except for the three times that the Fed forced Texas increases. However it turns out only one is a valid comparison of not changing the minimum to changing it. The three times that unemployment was different matched the dates of Federal increases. Unfortunately two of them matched dates that NY also increased rates on their own. So obviously they are not a valid comparisons of increasing to not increasing.

So there is only one time that Texas increased its minimum that NY did not, and Texas unemplyment was lower than NY.

Also in 2000, NY increased its minimum and Texas did not. The following year, in a time of bottoming unemployment for both States, NY matched Texas unemployment, and the next year, 2002, NY unemployment was lower, in a time of rising unemployment for both States.

Like I said, its not "all that".

Thank you for your indulgence.

6 Comments – Post Your Own

#1) On July 16, 2009 at 4:47 AM, dbjella (< 20) wrote:

I have never understood why the Gov't doesn't raise the minimum wage to something like $25, $50 or even $100 an hour?  Wouldn't we all be better off than a measly $7.50?

 

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#2) On July 16, 2009 at 8:49 AM, kaskoosek (36.11) wrote:

dbjella

That is funny. No one would have any work.

 

Pack your bags and leave to Mexico.

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#3) On July 16, 2009 at 10:36 AM, devoish (96.00) wrote:

dbjella,

Bell curve? Diminishing returns? Maybe when there are extreme earning gaps it helps, when there are not it hurtst?

I do know that any time I read the phrase 'minimum wage increases cost jobs', I will understand that the author does not really "know" that. I will understand from what I saw that more likely, and only very slightly more likely, minimum wage increases improve the employment picture. But again I don't really "know" that.

I would also like to add that from what I saw, older studies from when the highest earners earned 50x more than the average workers salary (not the minimum wage), seemed to claim a bigger effect (1-3% job loss for 10% increase) than more recent studies when the income gap has exceeded 500x the average workers salary.

But even the older studies did not show differences outside their error margins.

The newer studies, specifically a pre and post wage increase restaurant survey, which are disputed by a group that will not disclose their process publicly, show no unemployment increase within their margin of error.

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#4) On July 16, 2009 at 12:14 PM, dbjella (< 20) wrote:

devoish

With these newer studies, then why doesn't the gov't raise the minimum wage to $15?  I just don't understand how the gov't knows what to set the minimum to?  To me it seems inflationary, but what do I know.   

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#5) On July 17, 2009 at 12:11 PM, JTShideler (75.78) wrote:

Devoish,  I would appreciate if you took a look at my minimum wage analysis as I sprung off your idea.  It showed some interesting things although still probably inconclusive.

Link

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#6) On July 20, 2009 at 8:32 PM, FleaBagger (28.21) wrote:

You're right. Increasing the cost of something relative to the cost of everything else makes people buy more of it. And gravity pushes us away from our planet. Lucky we have centrifugal motion to hold us in place.

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