How the Minimum Wage Increased Unemployment in 2013

April 11, 2014

High state minimum wages increased unemployment by 747,700 workers, says Ben Gitis, a policy analyst at the American Action Forum.

  • Five states approved minimum wage increases in 2013.
  • Additionally, the District of Columbia, the airport zone SeaTac in Washington, and Montgomery County and Prince George's County (both in Maryland) also approved wage increases.

Gitis analyzed the impact of the minimum wage on employment -- how much does raising the federally-mandated wage affect the labor market? Because the 50 states have such variation in wage laws (19 states in 2013 had minimum wages above the federal $7.25 per hour), Gitis was able to compare these wage levels with unemployment and job creation.

  • States with minimum wages above $7.25 per hour had, on average, higher unemployment and lower net job growth rates than other states.
  • The average unemployment rate in the states above $7.25 per hour was 7.5 percent, compared to 6.4 percent in the $7.25 per hour states. Similarly, the average net job growth rate was 0.5 percent in the high wage states, compared to 0.8 percent in the $7.25 per hour states.

These differences are still small, though not unexpected because relatively few people actually earn the minimum wage. A better way to evaluate the wage's impact on employment is to look at its impact on low-skilled workers. A considerable portion of the low-skilled workers category is teenagers, who made up 24.2 percent of federal minimum wage workers in 2013.

  • The average unemployment rate for teenagers (ages 16 to 19) was 22.5 percent in states with high minimum wages, compared to 20.5 in states with the $7.25 per hour minimum wage.
  • The impact on job growth was even larger. The average net job growth rate for the high minimum wage states was negative, at -0.5 percent, while the growth rate for $7.25 per hour states was 1.8 percent. Teenage employment actually increased in the $7.25 per hour states.

Ultimately, Gitis determined that a $1 increase in the minimum wage increased the unemployment rate by 1.48 percent and led to a 0.18 percent decrease in the net job growth rate. For teenagers, the difference was even starker, with the additional dollar increasing teenage unemployment by 4.67 percent and decreasing the teenage job growth rate by 4.01 percent. In all he determined that high state minimum wages increased unemployment by 747,700 workers and reduced job growth by 83,300 jobs.

Source: Ben Gitis, "How Minimum Wage Increased Unemployment and Reduced Job Creation in 2013," American Action Forum, March 30, 2014.

 

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