Tuesday, October 25, 2011

New Data: The Minimum Wage and the Current High Employment Numbers

It has been my contention that the high unemployment is the result of two factors.

1. Extended unemployment benefits. If you pay people not to work, some will choose not to work.

2. The minimum wage. To the degree that the minimum wage is above where it makes sense to employ people, the unemployment rate goes up.

Greg Mankiw is out with new data which shows how many more people are now working at the minimum wage than even three years ago. This suggests that the number who can only get a job below the minimum wage (and are therefore unemployed or working off the books) has also probably grown.

Mankiw writes:
The Increased Role of the Minimum Wage

I am in the process of revising my intermediate macro book. As I was updating the section on the minimum wage, I was struck by how much the data has changed over three years. The minimum wage has a much larger role now than it did three years ago, in large part because of the legislated increase in the minimum wage from $5.15 to $7.25 an hour. For example, comparing the 2010 data with the 2007 data, one finds the following:

•The percentage of all hourly-paid workers paid at or below the minimum wage rose from 2.3 to 6.0 percent.

•The percentage of part-time workers paid at or below the minimum wage rose from 5 to 14 percent.

•The percentage of teenage workers paid at or below the minimum wage rose from 7 to 25 percent.
Those that Mankiw is reporting on that are being paid below the minimum wage are likely being paid by industries that have an exemption from the current minimum wage. There are likely others that are being paid below the minimum wage in non-exempt industries, as I said, off the books.

It is also tempting to assume that the increase in the minimum wage has resulted in the minimum wage simply casting a larger net over low paid employees. This may be only part of the situation.

The increase in regulations and regime uncertainty likely have pushed down the wages that businesses are willing to pay. Quite possibly the demand for many (becasue of regulations) is now at the minimum wage and for others below the minimum wage, which causes those to become unemployed (or work off the books).


  1. Perfect case of someone who got hoodwinked into believing that economics is an empirical science like chemistry and physics.

    Austrians have been saying minimum wage increases unemployment for decades.

  2. One would have to be severely retarded to throw their life away for minimum wage when you can just vote for terrorists to steal from other people for you. You have to make the world safe for Democracy so that the parasites can always live at other people's expense...Right Woodrow? A Central Bank Counterfeit Racket helps a lot too...Right FDR?

  3. Ron Unz's latest in the American Conservative actually says that by raising the minimum wage, we can curtail a large amount of illegal immigration.


    Steve Sailer isn't opposed to the idea, but says it needs to be part of a larger more comprehensive series of reforms:


    There's more than just economics at stake here gents.