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As the debate heats up in Congress over increasing the federal minimum wage from $7.25 per hour to $10.10 per hour, critics of the minimum wage are trotting out the same tired arguments that doing so will harm the national economy and increase unemployment. A review of the most recent evidence makes clear, however, that raising the minimum wage does not result in inevitable job losses—even during periods of high unemployment—and may in fact be good for the economy.
The easiest way to illustrate this point is simply to look at how unemployment rates have responded to past minimum-wage increases. To do so, we analyzed more than two decades’ worth of minimum-wage increases in U.S. states; we found no clear evidence that the minimum-wage increases affect aggregate job creation when unemployment rates are high.
Our analysis included every state that saw its effective minimum wage increase between 1987 and 2012 when the state’s unemployment rate was at or above 7 percent. In 48 of the 92 times this occurred, the unemployment rate actually decreased over the next 12 months, and in 4 other cases, the unemployment rate remained unchanged. In contrast, there were only 40 instances when the unemployment rate increased. That means when a minimum-wage increase occurred during a period of high unemployment, unemployment rates actually declined 52 percent of the time.
The fact that the nation’s current unemployment rate of 6.6 percent is actually well below the threshold used in our analysis suggests that there is even less reason to be concerned about negative employment effects.
Read the full column (CAP Action)