So Paul Krugman et al. are telling us that the empirical literature shows that minimum wage laws don’t have a discernible impact on teen unemployment. Yet another right-winger myth flushed down the toilet.
I went and looked at the paper Krugman says documents this fact. I was a little concerned because it seemed to be saying (I’m paraphrasing of course) that yes, if you just naively look at the states that have higher minimum wage laws, then they have lower employment growth, but once you correct for the broader trends in employment growth among states, then the impact of the minimum wage laws per se disappears. For example, it might just so happen that states that have bad weather, also have state-level minimum wage laws higher than the federal floor, and so earlier researchers incorrectly blamed the low employment growth on the minimum wage burden.
This sounded a little fishy to me, so I decided to do my own, very naive, straightforward look at the data. I first used this map from the Department of Labor to organize the 50 states into two groups: Those with minimum wages higher than the federal level, and all others. (The map says it’s accurate as of January 1, 2013.) Then I downloaded the Local Area Unemployment Statistics from the BLS to get state-level data broken down by age. I used this Excel table to get the unemployment rate among 16-19 year olds by state. Here’s what I found–and I am sorry but putting the two PNG files together is the only way I can figure out to present this quickly:
These results are pretty striking. First of all: Notice how high the teen unemployment rate is, across the country. If minimum wage laws have no effect, why should this be so? I am not denying that Krugman could come up with some story, but prima facie this fact in and of itself is a feather in the cap of the Econ 101 textbooks. (Specifically, we’d expect 16-19 year olds to have the lowest productivity, and so they would be disproportionately hurt by an absolute minimum wage law.)
Now then, if we look at the 19 states that have a minimum wage higher than the federal minimum, the average unemployment rate among teens is 25.2%. In contrast, if we look at the 31 states that have either no state-level minimum wage or one that equals the federal level, the average teen unemployment rate is 21.5%. A pretty big difference, and this is from sample sizes of 19 and 31. It’s not as if you’ve got California driving the result. (And of course, last time I checked, California had pretty nice weather.)
But beyond the arithmetic averages is the clustering of the states, in their respective groups, when you rank them from the highest to lowest teen unemployment rates. The most striking result to me: If you look at the top 5 and the bottom 5, you find: Four of the top five states have higher-than-federal minimum wages, while only 1 out of the bottom five does. I’m not sure how to set up the statistical problem, but I think that would be an incredibly unlikely result, if minimum wage laws had nothing to do with teen unemployment rates.
Furthermore, if you look at the top and bottom 10, you get: Out of the top 10, six of them have higher-than-federal minimum wages, while out of the bottom 10, only 1 does.
And then, just looking at the top and bottom halves: The top half has 13 states with higher-than-federal minimum wages, while the bottom half has the other 6.
Before you guys go shouting these results from the mountaintops, I really would appreciate it if somebody could reproduce my results. I did this fairly quickly Saturday night, and it’s possible I mislabeled one of the states etc. But these seem like pretty powerful results, especially since they back up what is literally textbook economics. So if someone could double check my work, that would make me more confident in publicizing this.