Thursday, January 09, 2014

Minimum Wage, Unemployment and Workers On The Dole

Increasing minimum wage isn't about trying to reduce unemployment.  It's about trying to ensure that those of us who work at minimum wage jobs can survive on the earnings without taxpayer assistance from those of us who work at better jobs or find success in business ownership.  

 But, there are some, including a gubernatorial hopeful in my own state of Illinois, who are very loud and active about saying there's a correlation between minimum wage and unemployment rates.

Is this true?  In trying to fix one problem are we merely exacerbating another that will ultimately worsen exactly the same problem (reliance on tax payer assistance to meet basic survival needs) we were trying to fix?   That's not at all what we want to do. So, it's something we really DO need to stop and take a good hard look at before we press ahead.

Luckily, we have all kinds of numbers and data that we can crunch any number of ways to get any results we want.  But, let's not do that.  I'm as liberal as they come, but I could give a rat's ass about preserving the public image of the ideology.  I'm far more interested in solutions that actually work to fix problems and don't inadvertently make those problems worse.

So, we're going to start by taking a quick glance at two states.   These two states are Georgia and Connecticut.

Georgia has the lowest minimum wage in the United States. Georgia does not recognize the federal minimum wage.  They set their own minimum wage more than two dollars per hour below the federal minimum at $5.15 and this applies only to employers with 6 or more employees.  For smaller employers, there is no minimum wage.  It's perfectly legal, if you have a business in Georgia with 5 or fewer employees,  to pay your employees less than a dollar an hour.

Connecticut, by contrast, has chosen to increase its minimum wage to nearly one and a half dollars per hour OVER the federal minimum wage.  It's not the highest minimum wage in the country (that honor belongs to Washington state,) but Connecticut's minimum wage is a whopping $8.70 per hour.

That's 45 cents more per hour than in MY state of Illinois!  My state has an unemployment rate among the highest in the country.

If what the folks who want to lower or even eliminate the minimum wage say about its effect on unemployment  is true, Connecticut must be absolutely drowning in high unemployment while  practically hemorrhaging jobs to Georgia.  ...And Georgia must be getting close to flipping the other way where they're headed toward that negative unemployment rate problem we all played our tiny violins for Japan over a couple of decades or so ago... more jobs than people to fill them.  Right?

Well, let's see.  Numbers are posted online and easy to find for November 2013.  So, how did these two very different states clock in at the end of November 2013?

Connecticut headed into the final month of the year with exactly what we expected to see... a high unemployment rate of 7.6%. More than half a percentage point above the national average. Ouch.  This isn't what I was hoping to see. .Only 11 states and D.C. had higher unemployment rates than Connecticut.

Unfortunately for Georgia, who boasts the lowest minimum wage in the US, it is one of those 11 states, with an even HIGHER 7.7% unemployment rate.  Despite widely disparate minimum wage laws, these two states have almost identical unemployment rates. In fact, they follow one another on the list, when states are ranked in order of unemployment rate for Nov. 2013.

Obviously, every state on the list has a higher minimum wage than Georgia, since Georgia has the lowest in the nation.  But, there are states with a higher minimum wage than Connecticut. Maybe Georgia is a fluke... the oddball out.  Surely all of the other states with unemployment rates higher than Connecticut and Georgia have higher minimum wage than Connecticut, right?

 So, what of those 12 states (including Connecticut) with the highest unemployment rates in the country?  It turns out that  ALL of the states with higher unemployment than Connecticut,  including not only Georgia but also my own state of Illinois, have a LOWER minimum wage than Connecticut!!  ALL of them.   And five (including Georgia) of those dozen highest-unemployment states have minimum wage at or below the federal minimum.

By now, if you're in the camp that believes a higher minimum wage means higher unemployment, and that states who have lowered or abolished the minimum wage attract more jobs and spur business/job creation, you're screaming at me through the monitor to look at the twelve states with the LOWEST unemployment rates in the nation.  ...And you are absolutely 100% correct.  Unless my goal is to find what I hoped to find and boot-scoot out feeling smug... but that's not my goal.  We've identified a problem. A possible solution has been put forward and there are legitimate questions raised about whether it will have other-than-intended effects that would actually worsen the original problem, in the long run.   I'm one of those taxpayer's who's saddled with the burden of feeding people who aren't lazy bums with no ambition to even look for work, but who are out there actually working every day..  So that they don't starve.

So, let's look at the numbers of the top 12.    Good news for those who think minimum wage needs to be lowered or abolished.  Two of the 12 most employed states have a minimum wage that is below the federal minimum.  Wyoming and Minnesota.   But wait, two of the 12 most employed states have a minimum wage ABOVE federal minimum.  Vermont and Montana.  In fact, Vermont has a minimum wage even higher than Connecticut (by 3 cents.) AND Vermont, while tied at 4.4% with Wyoming, actually has lower unemployment than Minnesota's 4.6%!   8 of the 12 states with the lowest unemployment in the nation have a minimum wage that is equal to the federal minimum wage.   Who had the lowest unemployment?  North Dakota with only 2.6% unemployment and a minimum wage equal to the federal minimum.  South Dakota came in second at 3.6%.

 So, out of curiosity, how did Washington state fare?  As I mentioned, earlier, Washington state boasts the highest minimum wage in the U.S., weighing in at a gargantuan $9.32/hr.  That's two dollars and seven cents above the federal minimum wage and more than $4/hr over what all but the smallest employers in Georgia have to pay.  Washington ended the year with 6.8% unemployment.  28 states fared better and 21 states plus D.C.  fared worse with unemployment than Washington.  That puts Washington near the middle of the list and slightly closer to the high-unemployment end of it, but Washington can boast that they did squeak in at just below the national average of 7% unemployment for November 2013.  (I wish my state could boast that!)

How can it be that 21 states plus D.C. have a higher unemployment rate than Washington state with the highest minimum wage in the nation?  How can it be that 39 states have a lower unemployment rate than Georgia with the lowest minimum wage in the nation?  How can it be that 10 out of the 12 states with the lowest unemployment rates in the country also have a minimum wage that is equal to or higher than the federal minimum wage of $7.25 and that of the 12 states with the highest unemployment 5 out of 12 have a minimum wage that is less than or equal to the federal minimum wage of $7.25/hr?


Because raising or lowering the minimum wage has NOTHING to do with raising or lowering unemployment rates.  One does not impact on the other, either positively or negatively.  When it comes to unemployment rates and minimum wage, there is no correlation, no causation, no relation, whatsoever.

Need numbers?



Kelli said...

Georgia is still bound by the federal minimum wage laws, whether they 'recognize' those laws or not.

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