Does Raising the Minimum Wage Really Raise Unemployment?

Republicans seem to think that just because a business has extra money they will hire a new employee. At least that is the message they sent during the campaign last year with their insistence that tax cuts for the wealthy trickle down to job creation because the wealthy will have a surplus. Now that President Obama has proposed raising the minimum wage to $9.00 per hour they insist again that this will kill the power of businesses to hire employees because of the higher cost. Well, corporate profits are at an all-time high, so where are the jobs again? Not only do we see their theory being disproved in practice, but it is disproved in logic as well. Extra money never dictates hiring patterns, demand does. Regardless how much money a business has they will not hire anyone if they do not need the help. With companies’ profitability continually growing in recent years they can certainly afford a minimum wage hike.

Before you let a Republican tell you that studies show a higher minimum wage leads to higher unemployment you need to know that an equal (or greater from my research) amount of studies show exactly the opposite. The fact is there is no clear evidence to suggest raising the minimum wage will result in higher unemployment. Much of the evidence that I have seen from the right argues that states with a minimum wage that is higher than the federal minimum wage have a higher unemployment rate among younger workers. This, many assert is proof that a higher minimum wage will result in higher unemployment.corporate-profits

But if we break it down we see that this correlation does not compute. The federal minimum wage is currently $7.25, which means if a state chooses to set their minimum wage at $8.25 they are at a competitive disadvantage compared to states that follow the federal rate. Given the option, of course a company will choose to invest in states that will require lower fixed costs, such as hourly rate. This competitive edge takes away jobs from states with higher minimum wages. However, if both the minimum wage were increased, both of these two states would have a $9.00 per hour minimum wage, eliminating the competitive edge. Making this particular cost equal, all else being the same, there is now no reason for a company to avoid opportunities in these higher unemployment states. In fact, because more people are unemployed, one could argue there would be a more skilled candidate pool to choose from, and hiring in a state the used to have a higher minimum wage may increase productivity for a company. Either way, it is clear that it is a competitive advantage, not a higher minimum wage that makes for lower unemployment certain states.

Another popular argument is that an employer will not be able to afford to higher help if they are forced to pay $9.00 per hour (I am actually snickering to myself as I type that). This argument again hinges on the logical fallacy that you hire someone because you have extra money. This is nonsense, as I made clear earlier. Demand dictates how much help you need, and if your demand is high enough to need help, it is also high enough to pay an accordant $70 per week for that extra help, assuming you need that help for a full 40 hours. Moreover, as addressed earlier, corporate profits are at an historical high; companies are doing just fine right now, they can handle it. One last interesting fact on this is that currently only 3.4% of the workforce works for minimum wage.  Clearly, companies are not hiring many people at minimum wage, or, if they are, they can easily afford to give them a raise shortly thereafter. This is another clear indicator that employers can afford a minimum wage increase. This number also shows us that about one out of every 29 jobs pays minimum wage. So people looking for work will still have 96.4% of potential jobs to choose from, even if a minimum wage increase meant companies paying minimum wage would not be able to hire.

It is time to for Republicans to admit their economic philosophies have not panned out. The trickle-down effect does not work; it has never worked. Raising taxes on the rich does not, nor has it effected investment; in fact, there is some evidence to show that it increases it. Tax cuts do not pay for themselves. Leaving businesses (banks in particular) largely unregulated ends up hurting the economy. And a minimum wage increase from $7.25 to $9.00 will not cost millions of jobs. Talk to me when someone proposes a hike from $9.00 to $22.00; that might be something businesses cannot afford. But I do have to give them credit. The Republeconomists are probably on to something with this Obamacare thing.

Anyway, if the minimum wage increase will not hurt jobs, what will it do? Glad you asked. Income inequality (no my good conservative friends, that is not code for class warfare) was a major cause of the Great Depression and the 2008 collapse. Though it is modest, and will only affect maybe five percent of jobs, a hike in the minimum wage will help that. It will also put more money—buying power—into the pockets of the middle and lower income citizens. If the buying power increases, demand will likely increase leading to more companies needing more help. This is real economic growth.

JoblosschartNow, being completely unbiased I have to say that there is also no absolute evidence that raising the minimum wage will not increase unemployment; this entire issue is still one hotly debated by economists everywhere. One thing we do know for certain is that when the minimum wage increased in 2009 the rate of job loss slowed. I am not suggesting it was because of the minimum wage, simply illustrating that an increase does not add to unemployment the way right wingers insist it does. Because businesses can afford this particular increase, because it will help workers, and because recent history suggests it will not, the burden should be on conservatives to prove raising the minimum wage will cause harm. As of yet, nobody has been able to do this.


–Matt Young

19 February 2013


About patriotslog

I am studying to achieve a double major in political science and journalism from the University of Kentucky. I am married to a wonderful woman named Sierra. I am starting this blog because I feel the political climate in Washington is carving deep canyons for our children to climb out of. Our representatives, on both sides of the isle, do not represent us, they represent the lobbyists.This blog is not to give answers, but to make people think. I believe the more we think about our ideas the better they will become; as opposed to becoming more and more intrenched in far left or right wing brainwash, where it seems nobody thinks anymore. I hope y'all enjoy.

Posted on February 19, 2013, in Patriotslog Articles and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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