A Higher Minimum Wage: Will it Actually Increase Unemployment?

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A Higher Minimum Wage Will it Actually Increase
Unemployment?

• Terry Luby

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Introduction

• Is it beneficial to raise the minimum wage?
• Reduce Poverty
• Decent standard of living
• Negative consequences
• I hypothesize that a higher minimum wage will
  translate to greater unemployment rate

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Base Study

• Do minimum wage hikes raise U.S long term
  unemployement? Evidence using state minimum wage
  rates.
• OUTCOME LMINWAGE LWAGE INDMIX EMP GROWTH
  AGE
• Employment growth 1984-1989
• Card and Krueger 1990-91

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Data

• 51 observations
• Cross sectional variation
• Accurate data

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Dependent Variable 2001 State Unemployment Rate

• Independent Variables
• 2001 minimum wage
• 2001 below poverty level
• 2001 less than H.S. diploma
• 2001 average travel time
• 2001 median value of houses

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Dropped Variables

• 2001 median housing value
• 2001 less than H.S. diploma

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UNEMPLY 8512.2 32097 MINWAGE POVERTY
4820.8 AVGTRAV
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Empirical Results

• Durbin Watson Statistic 2.0650
• dL 1.24 dU 1.49 at .01 confidence
• No autocorrelation

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Multicollinearity

• T 1.687
• Critical R .234292
• R squared .0548927
• No Multicollinearity

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Heteroschedasticity

• White Test
• Value of .97349 exceeds .05
• No heteroschedasticity

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Results

• Strong Correlation
• Poverty
• Avgtrav
• Minwage
• Related to higher unemployment rates

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Future Studies

• 2010 census
• Different industries

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Conclusion

• The effects of minimum wage hikes must be weighed
  so that the minimum wage is fulfilling its
  intended purpose to ensure workers a decent
  standard of living

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