Minimum Wage and Unemployment; Are They Related?

Minimum wage first applied in Australia and New Zealand to protect low skilled people. Nowadays, one of the biggest debate in the Economics History; The relationship between Unemployment and Minimum-Wage. Why it is like that? Because both sides have some serious reports, researches etc. (Katz & Kruger 1992-Texas, Dube,Leister & Reich 2010) In this article, I will try to share both arguments with very basic and -non- economical language.

Minimum Wage for Who?

Firstly, Argument 1

Minimum Wage for the people who are in the bottom of the society with low skills, low experience such as young population or immigrants.

Secondly, Argument 2

Minimum Wage for no-body in the long-term. It can not help anyone because it will cause a lot of negative effects for economy such as increase in unemployment, increase prices etc.

Minimum Wage Effects

On Employment

Again, Argument 1

Some Academic Studies which I mentioned above, show that minimum wage increases don't kill the jobs even during high-employment periods. From 1990 to 2012, after minimum wage increased, 52% unemployment rate decreased, 4% stay the same and %44 increased.  Which means that, according to data increasing minimum wage didn't cause unemployment mostly.

And, Argument 2

This is basically supply and demand of labor. How? As seen in the graph, when the minimum wage per hour is $8, Supply and Demand of the labor is at the equilibrium level. When the government increase the minimum wage from $8 to $10, number of workers decreased from 100.000 to 70.000. Yet, Supply of number of workers increase because more people now want to work for minimum wage that causes surpluses.

Basically, If one small firm, has 2 workers and they work 8 hours a day, total they work 80 hours per week. 80 hr x $8= $640. Now, let's assume that the minimum wage is $10. Therefore, 80hr x $10= $800. The difference per month is $640, so the firm has to pay 1 more week every month. However, this will increase the cost and small businesses can not continue like that too long. So, the firm has to fire one worker enable to continue business.

Argument 2.1

I found another argument from CATO.ORG which supports Argument 2 and I found it quite interesting. Basically, it says that `If government increases minimum wage from $7 per hour to $57 per hour, you all accept that unemployment will increase right? So, why you don't believe that increasing from $7 to $10 can cause increase of unemployment also. Of course, it will be smaller than $7 to $57 but still it will increase.`


My research; 

USA unemployment rate from 2000 to 2014 increased 65%.
Minimum Wage increased 72%

UK unemployement rate from 1999 to 2014 decreased %2
Minimum Wage increased 75%

On Prices

Firms which have a lot of minimum-waged workers can directly show the increase of the minimum wage to the customers. Basic example; McDonald's can increase the price of Menus, so increasing minimum wage affects will minimize. However,I think that; this arguments are dependable on the countries.

Argument 1

For Example; The Guardian's Dave Oliver mentioned that, from 1999 to 2014, In UK, minimum wage increased by 75% yet at the same time of period CPI increased by just 35%. Therefore, increasing minimum wage didn't affect the prices.

Argument 2

On the other hand, I made little research also. In USA, from 2000 to 2014, minimum wage increased by %72 and CPI increased by %71. Almost the same. In this case, we can say that minimum wage affected the prices. But anyway, I think this is not the good type of research because there is much more indicators for CPI.

Conclusion

In this article, I tried to give you the both sides arguments basically and objectively with some of my researches. I hope you can make your own conclusion by the help of this article.
Don't forget to share with us your opinion.