The Facts on Raising the Minimum Wage When Unemployment Is High

Increasing the Minimum Wage During Rough Economic Times Does Not Kill Jobs

By T. William Lester, David Madland, and Nick Bunker | June 20, 2012

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Read this full column (CAP Action)

Raising the minimum wage would be good for our economy. A higher minimum wage not only boosts workers’ incomes—something that is sorely needed to boost demand and get the economy going—but it also reduces turnover and shifts businesses toward a high-road, high-human-capital model.

Still, some policymakers may be nervous about increasing the minimum wage while unemployment is so high. Yet, both the federal and states governments have raised the minimum wage numerous times during periods of high unemployment and the evidence indicates that employment has been unaffected.

A significant body of academic research has found that raising the minimum wage does not result in job losses even during hard economic times. There are at least five different academic studies focusing on increases to the minimum wage made during periods of high unemployment—with unemployment rates ranging from 7 percent to 12.3 percent—that find an increase in the minimum wage has no significant effect on employment levels. The results are likely because the boost in demand and reduction in turnover provided by a minimum wage counteracts the higher wage costs.

Similarly, a simple analysis of increases to the minimum wage on the state level, even during periods of state unemployment rates above 8 percent, shows that the minimum wage does not kill jobs. Indeed the states in our simple analysis had job growth slightly above the national average.

Read this full column (CAP Action)