Wednesday, January 22, 2014

Review of 60 Years of the Minimum Wage

(Added: I have an additional post with more on the effect of RGDP growth on this relationship.)

Thanks, everyone for the comments on this post.  I have addressed some issues in the comments there, and added some things in the body of that post.

Some commenters mentioned that using an employment rate instead of total employment might help to get rid of noise due to population shifts, etc.  That's a great idea.  It's funny how when you're working with data, you don't think of some obvious things.

Many comments have mentioned the effects of the business cycle.  Like many of them, I had kind of eyeballed it, and thought there was an unusually high coincidence of recessions following minimum wage hikes.

The comments spurred me to get more specific, and I think, in general, the coincidence isn't as strong as it seems like at first glance.  Here are all of the individual graphs from the first post, with the following changes:

1) I changed from teen employment level to teen Employment to Population Ratio (EPR).
2) I added  recession bars and also an inverted unemployment rate (for all ages) as signifiers of recession effects.

1956 - a recession coincides with a turndown in EPR, but only for the last few months of the MW period.

1961 - this is coming out of a recession, so there is a downtrend even though the economy should be recovering.  There is a recovery in teen EPR after the MW hikes have passed

1967 - no recession during the MW related downturn.  Then a brief recovery in teen EPR before a recession that follows

1974 - this MW hike appears to coincide precisely with a recession, so it is difficult to separate the signature of each effect.  However, teen EPR begins declining before unemployment.  EPR is not usually a leading indicator in recessions.

1990 - the recession begins 4 months after the MW hike.  However teen EPR begins declining in the months preceding the MW hike.  EPR is not usually a leading indicator in recessions.

1996 - no recession, no MW related decline

2007 - the recession begins 6 months after the MW hike.  However, teen EPR begins declining in the months preceding the MW hike.  EPR is not usually a leading indicator in recessions.

The Tally
7 Episodes:

1 - no MW decline

1 -  MW decline not discernible from concurrent recessionary effects, but does have signature of pre-MW downward shift in teen EPR

2 - MW decline precedes recession, with signature of pre-MW downward shift in teen EPR

2 - MW decline with signature pre-MW downward shift in teen EPR, no recessions near MW inception

1 - MW decline, in spite of economy in recovery phase after a recession

PS.  The recessions in 1957, 1960, and 1969 are not concurrent with initial MW hikes, but they appear in these graphs.  Note that the fall in the teen EPR does not lead the rise in the unemployment rate in these cases.

Here is the graph for the entire period.  Full tally of 10 recession and 7 MW episodes:
3 Concurrent recessions & MW, declining trend
7 recessions without MW, declining trend
3 MW without recessions, declining trend
1 MW without recession, climbing trend
All periods with no MW or recession, climbing or accelerating trend


  1. Very interesting stuff. However, on thing that I have not seen mentioned in the comments here or on Cowens' blog is that under federal law, employers can pay teenagers a sub-min of $4.25 an hour for the first 90 consecutive of employment. In that case, assuming employers wanted to, they could delay the impact of the m/w hike for three months by rotating in new hires (of course, this might no be feasible depending on the need for training for the position and so forth).

    Moreover, there is another sub-min. established for persons whose primary income is from tips, which hasn't been raised in several years, and are commonly found in the services industries (waitstaff, bartenders, bussers, etc.)--62% of workers paid hourly at or below m/w are in the service industry, and one study done in Oregon found that 1 in 3 teens in that state worked in food services (

    Both of these factors would alter the relationship between a rise in the m/w and teen employment.

    Lastly, I think it's pertinent to look at the food service industry to see the impact of wages on employment because wages in that industry are typically at or near m/w, and there has been a decline in teen employment (25% of fast food workers were teens a decade ago, not down to roughly 16%). Conversely, older workers are taking those positions, with a surprising growth in college educated workers (roughly 17% of fast food workers holding a bachelor's degree). So, one interpretation of this is that during economic downturns, or periods of stagnant job growth for mid-skill workers, teens working in food service and similar occupations historically more populated with teen workers are being displaced by older, more educated workers who cannot find work in their fields.

    1. Thanks for your input. Definitely some things it would be interesting to look into.

      I would have the same intuition as you about the exchange of younger and older workers as MW rises, but the BLS's Characteristics of Minimum Wage Workers tables covering the last several years show a surprisingly parallel relative rise in MW workers across demographic groups. If the proportion of teens at MW doubled, then the proportion of older workers, men, women, etc. also tended to roughly double.

      I agree that a lot of these changes seem to be taking place over a long period of time, but I'm not sure that they have a significant effect on the sudden trend shifts that happen at MW inceptions.

    2. I believe different states have different rules... Not all states allow the sub-min wage. Florida does, but not Georgia, I believe.
      What would also be interesting to see would be the cost of living. Raising minimum wage, ultimately raises cost of living, as now everything becomes more expensive.