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Raising the Minimum Wage does not Kill Jobs

Raise Minimum Wage

Raising the Minimum Wage does not Kill Jobs

People who claim that raising the minimum wage will cause job losses never cite the actual historical record, because history shows the opposite to be true. With very few exceptions, the economy has grown and the number of jobs has increased following each increase in the minimum wage. There is absolutely no statistical record to justify a claim that a minimum wage increase will cause job losses.

They can’t cite the actual record, so instead they quote conclusions from economic theory. Many times, they even use haughty language to demean those who disagree with them, such as “people in favor of raising the minimum wage don’t understand basic Econ 101”. In reality, those who say such things are the ones who miss the point of what these theories taught in Econ 101 are actually saying.

What about the assumptions behind the theory? How do they affect the outcome when real-world circumstances, without the isolating assumptions, are taken into consideration? What effect does an increase in the minimum wage have on the demand and supply in both the product markets and the labor markets? How do the demand and supply curves shift as a result? What effect does the fact of the demand for labor being derived from the demand for products and services have on the theoretical conclusions? What is the elasticity of supply, and what is the elasticity of demand in the various markets that are affected by an increase of the minimum wage? How does this change the outcome? How does the fact that the economy does not have one labor market with every potential worker being eligible for the labor supply, but instead consists of many different labor markets for different jobs in different product markets, different skill levels, different geographical locations, etc. affect the conclusions of the theory? How does the fact that the world doesn’t consist of all (or any) markets that are perfectly-competitive, but instead consists almost entirely of markets which can best be described as oligopoly or monopoly, affect the conclusions of the theory? What about the “before” situation in the theory? Can it really represent free-market equilibrium when free markets have never existed outside the theoretical world? If the beginning point is a point of labor exploitation and one-sided policies that give corporations more market power than workers and consumers have, how can the conclusions really have any “free market” meaning at all? What is the cumulative effect of previous policies on this “equilibrium”?

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These are all valid points that together explain why the real-world results are so far from the theoretical conclusions. They are all points taught in Econ 101 that apparently are forgotten by those who cite theoretical conclusions or superior knowledge of Econ 101 to argue against raising the minimum wage. I could discuss each of these points in detail, with explanations of what they mean to the relationship between the minimum wage and jobs, but that would be a rather lengthy discussion by itself. None of it would support a conclusion that raising the minimum wage would kill jobs or do more damage than good in the economy. All of it would be based on concepts taught in Econ 101. People who claim that they base their opposition to an increase in the minimum wage on a superior knowledge of basic economics are the ones who don’t know what they are talking about.


A version of this essay is included as a chapter in the book Common Misconceptions of Economic Policy by Jerry Wyant. You can purchase this book in paperback form from Amazon and other online book distributors. The list price is $12.99 (only $9.99 using discount code TA9GTK7E when ordering, depending on the distribution channel). Or if you prefer, you can download a digital version on your device (Kindle, Nook, etc.) for $4.99.

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Author: 
Jerry Wyant
Date: 
2014-08-04
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