Some claim that the minimum wage increases unemployment and that raising the minimum wage is especially hurtful to the unemployed. Look at this side-by-side chart of the minimum wage and unemployment from 1955 to 2004:

Constant
(1996)
dollars
1955: $4.39/4.4%
1956: 5.77/4.1
1957 5.58/4.3
1958 5.43/6.8
1959 5.39/5.5
1960 5.30/5.5
1961 6.03/6.7
1962 5.97/5.5
1963 6.41/5.7
1964 6.33/5.2
1965 6.23/4.5
1966 6.05/3.8
1967 6.58/3.8
1968 7.21/3.6
1969 6.84/3.5
1970 6.47/4.9
1971 6.20/5.9
1972 6.01/5.6
1973 5.65/4.9
1974 6.37/5.6
1975 6.12/8.5
1976 6.34/7.7
1977 5.95/7.1
1978 6.38/6.1
1979 6.27/5.8
1980 5.90/7.1
1981 5.78/7.6
1982 5.45/9.7
1983 5.28/9.6
1984 5.06/7.5
1985 4.88/7.2
1986 4.80/7.0
1987 4.63/6.2
1988 4.44/5.5
1989 4.24/5.3
1990 4.56/5.6
1991 4.90/6.8
1992 4.75/7.5
1993 4.61/6.9
1994 4.50/6.1
1995 4.38/5.6
1996 4.75/5.4
1997 5.03/4.9
1998 4.96/4.5
1999 4.85/4.2
2000 4.69/4.0
2001 4.56/4.7
2002 4.49/5.8
2003 4.39/6.0
2004 4.28/5.5

Sources:

http://www.infoplease.com/ipa/A0774473.html

http://www.bls.gov/cps/prev_yrs.htm

So as you can see, over that lengthy period, the minimum wage was raised eleven times. On five of those occasions unemployment increased, on five it decreased and on one it remained steady. All that increasing the minimum wage does is let the common worker worry less about paying the bills. Anyone for a minimum wage increase?

__________________
"I am a Tory Anarchist. I should like every one to go about doing just as he pleased- short of altering any of the things to which I have grown accustomed." (Max Beerbohm)

Force, you are using extremely faulty logic. First, minimum wage increase usually occur simultaneously to upturns in the economy where the unemployment is already low. Second, it takes a while for the effect of the increase of minimum wage to affect the market... you wouldn't see an increase in unemployment right away after a MW increase, it just does not happen like that.

Many economics agree that a minimum wage increase (especially a large one) will definately have a negative effect on the economy.

Constant
(1996)
dollars
1955: $4.39/4.4%
1956: 5.77/4.1
1957 5.58/4.3
1958 5.43/6.8
1959 5.39/5.5
1960 5.30/5.5
1961 6.03/6.7
1962 5.97/5.5
1963 6.41/5.7
1964 6.33/5.2
1965 6.23/4.5
1966 6.05/3.8
1967 6.58/3.8
1968 7.21/3.6
1969 6.84/3.5
1970 6.47/4.9
1971 6.20/5.9
1972 6.01/5.6
1973 5.65/4.9
1974 6.37/5.6
1975 6.12/8.5
1976 6.34/7.7
1977 5.95/7.1
1978 6.38/6.1
1979 6.27/5.8
1980 5.90/7.1
1981 5.78/7.6
1982 5.45/9.7
1983 5.28/9.6
1984 5.06/7.5
1985 4.88/7.2
1986 4.80/7.0
1987 4.63/6.2
1988 4.44/5.5
1989 4.24/5.3
1990 4.56/5.6
1991 4.90/6.8
1992 4.75/7.5
1993 4.61/6.9
1994 4.50/6.1
1995 4.38/5.6
1996 4.75/5.4
1997 5.03/4.9
1998 4.96/4.5
1999 4.85/4.2
2000 4.69/4.0
2001 4.56/4.7
2002 4.49/5.8
2003 4.39/6.0
2004 4.28/5.5

Okay, suppose that the lag is three years:

1956-1959: 4.1 to 5.5% (Increase)

1961-1964: 6.7 to 5.2% (Decrease)

1963-1966: 5.7 to 3.8% (Decrease)

1967-1970: 3.8 to 4.9% (Increase)

1968-1971: 3.6 to 5.9% (Increase)

1974-1977: 5.6 to 7.1% (Increase)

1976-1979: 7.7 to 5.8% (Decrease)

1978-1981: 6.1 to 7.6% (Increase)

1990-1993: 5.6 to 6.9% (Increase)

1991-1994: 6.8 to 6.1% (Decrease)

1997-2000: 4.9 to 4.0% (Decrease)

Unemployment increased six times and decreased five. There is still no correlation. If the lag is one year, moreover, unemployment increased four times and decreased seven times.

__________________
"I am a Tory Anarchist. I should like every one to go about doing just as he pleased- short of altering any of the things to which I have grown accustomed." (Max Beerbohm)

I support raising the minimum wage to $7.20 per hour, by the way.

__________________
"I am a Tory Anarchist. I should like every one to go about doing just as he pleased- short of altering any of the things to which I have grown accustomed." (Max Beerbohm)

Increasing minimum wage *should* increase unemployement.. I am a left winger, but still I admit this.. The changes in the minimum wage are so small that other reasons causing unemployement hide it.. Also the minimum wage is increased in good times, which causes false correlation between good unemployement situation and high minimum wages..

This is a negative effect of the minimum wage.

On the other hand, the positive effects of the mimimum is the following:

1) It increases certain payment segment's abilility to get compensation for labour.. Overall, the lowest segment salaries cannot be dumped into hunger-salary level (somthing that can easily happen).. So, it effectively increases the salaries for one part of the lowest income labour and leaves the other part unemployed..

2) The most important function of the minimum wage is typically supporting the social system.. We try to keep most people above some certain income level x, which makes it possible for individual to survive in some level of dignity.. If the markets cannot provide salaries for an individual above this level x, the state will support the individidual's living until he will find such salary..

In other words, if there is no income level x, or if it set too low, the state support for individual will never happen.. The individual is always able to find some slave-labour, that will deny his 'right' to social security.. In this case, individual will eventually work under inhuman conditions, which we see undesirable..


For this reason I have fallen in love with the idea of 'negative taxation' or 'citizen wage'.. The idea behind this is to remove the minimum wage and instead support strongly individuals whose salaries are relatively low.. The overall income would be related to the amount of work individual does thus maintaining the motivation for working and seeking work.. Still, the support system itself would keep the people's income over or about at the minimum level..

So, while nowaday man either works with income above X or he is unemployed and we grant him aX, a < 1. In the negative taxation model man working with income I under 1.5 X, could receive subsidies worth 0.5*(1.5X - I). In this case, if one had no work, one would get 0.75X.. If he had salary of fourth X, his total income would be about 0.9 X. If he had salary of half X, his total income would be X. Under salary X, the income would be 1.25X. At salary 1.5X, the subsidies would end and the taxation would slowly begin as the salary increases..

X could be set to 1000-1500 dollars per month for 40h a week or like that, Depending of the people's willingness to pay and the market situation.. Also other variables of the equation can be changed to adjust the motivation to work and the income levels..

Overall, this model would not cost (much?) more than unemployement support.. Let's consider example, where we had A people unemployed in the traditional model with 0.75X support and only third people unemployed in the negative taxation model with 2/3:s employed with about 0.5 X salary. the cost for first model is 0.75AX, while the cost of the second model is 1/3 * 0.75AX + 2/3 * 0.5AX = about 0.58AX and perhaps people size of A with salaries about X receiving total of 0.25AX totalling 0.83 AX. So the numbers would be 0.75AX against 0.83AX, where AX might be n million people * ~1000 dollar/personmonth = ~n billion/month..

Of course these are rather wild guesses but might give some idea, what things would look after the negative taxation system.. Money would be saved because more people would earn bigger portition of their incomes.. Money would be wasted only because somewhat bigger amount of people would be supported to maintain the motivation to seek better jobs..

This would both decrease unemployment rate and increase the GDP, since more people would be doing producting work.. It would also support social values by supporting people and providing them with a respectable work, which is something many see important for self-esteem and self-image..

- BtD

__________________
"Freedom is the freedom to say that two plus two make four. If that is granted, all else follows."
[George Orwell, 1984]

The reason that increasing the minimum wage doesn't increase unemployment is the fact that it increases the spending of the working class, which spends far more of its money than the wealthy (and the money of the wealthy tends to stay within wealthy circles). The stimulus from the increased spending offsets the disincentive on employers and results in no net decrease in employment.

__________________
"I am a Tory Anarchist. I should like every one to go about doing just as he pleased- short of altering any of the things to which I have grown accustomed." (Max Beerbohm)

Actually, if the salaries increase, while the unemployement rate does not change - the overall production and therefore the economic wealth remains constant.. The money and products are simply distributed differently.. The labour have more money, while the owning class loses money.. Or the customer 'loses' money which effectively cause only inflation.. Anyway, if the distribution of wealth between the labour and owning class changes, the same money amount of money is used and same amount of goods is produced.. The same money is simply used by different people to buy different products.. Still, the amount of money does not change and neither its employing ability should not change.. Though, the industry will reorganize to respond better the changed market of demand..

The employement rate depends mainlly of the economy's ability to employ people in jobs, that produce more value than some minimum value X.. In modern societies X is the minimum wage.. In old 'good' times, the X is the cost of keeping a man enough alive to do his work.. During those times, the unemployement problem was completely solved.. People either starved to death or gained a job (and starved to death)...

And the economy's ability to produce value of work depend of the quality of the labour (education, attitude etc.), accumulated capital (tools, trucks, factories, knowledge) and available resources (energy, metals, farmable land)..

The economy's tendency to give compensation of work depend of the market situation at the market of capital and the labour markets.. If there is oversupply of labour, owners will gain high profits.. If there is lack of labour, the labour will gain good compentation.. The corporations also want the market level of profit for its investments and labor work.. For this reason, both salary rate and employement rate might (locally) go down, even if productivity increases..

So the employement is a factor of minimum wage, productivity and labour's negotiation ability.. If the minimum wage increases, while the two other stays the same, I doubt the employement rate can do nothing but decrease.. All though, it is possible that the change in the minimum wage is so small that companies won't react to it, especially in the better times.. In this kind of situations the lower income classes could already otherwise demand better compensation..

- BtD

__________________
"Freedom is the freedom to say that two plus two make four. If that is granted, all else follows."
[George Orwell, 1984]

My point is that the working class spend a greater percentage of their money than the wealthy. Moreover, narrowing the gap between the rich and the working class, up to a certain point, benefits the economy by increasing the fiscal confidence of the working many rather than the rich few.

__________________
"I am a Tory Anarchist. I should like every one to go about doing just as he pleased- short of altering any of the things to which I have grown accustomed." (Max Beerbohm)

have not even taken Economics 101, but aren't there a few additional factors missing in this analysis? The Fed. chairman pushes and pulls the levers of the economy by raising interest rates when unemployment drops too low; the federal government has an effect on unemployment by borrowing money to increase spending on weapons manufacturing and other government jobs programs. How do you separate the unemployment affect of raising the minimum wage ? The unemployment rate is also affected by guest worker programs.

If the minimum wage is raised some companies may pass on the expense to the consumer but some may not be able to do so- that depends on the competitive environment. Businesses may have to find other ways to become more efficient. The usual argument about minimum wage is that teens will have fewer jobs if the minimum goes up; then why not allow a 6 month below minimum "training" period??

The rich actually spend it.. When they save the money or put the money into investments they effectively turn it into capital.. And well - what is capital? Capital is factories, buildings, tools, technology, design, cars etc. These are all things, that are produced by men.. They are just different kinds of products and they have the same employing ability as the customer products or luxuries have..

- BtD

__________________
"Freedom is the freedom to say that two plus two make four. If that is granted, all else follows."
[George Orwell, 1984]