Only in America

Posted: 18 February 2016 in Uncategorized
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fredgraph-1

The usual argument against substantially raising the minimum wage—to, say, $15 an hour—is that we don’t have any data to analyze the effects on unemployment of such a large increase. Better, critics argue, to settle for a much smaller increase, where the data indicate no substantial effects, one way or the other.

However, Teresa Tritch points out, U.S. history does offer a relevant example: 1950, when the minimum wage went from 40 cents an hour to 75 cents an hour, an increase of 87.5 percent.

The entire raise took effect on Jan. 25, 1950, just 90 days after the passage of the law that authorized it. Some 1.5 million workers saw their wages rise.

What happened then? Data sources from that era do not allow for the kinds of analyses that economists have used to evaluate the impact of more recent minimum wage increases. Moreover, in 1950, several industries were still exempt from having to pay the minimum wage, so direct comparisons between then and now are not feasible.

But this much is known: In December 1949, the month before the raise kicked in, the national unemployment rate was 6.6 percent. By December 1950, when the 75-cent minimum had been in place for nearly a year, it had fallen to 4.3 percent. By December 1951, it was 3.1 percent and by December 1952, it was 2.7 percent.

The higher minimum may not have caused the improvement, but it clearly was part and parcel of it.

There is no firm historical evidence to reject or support raising the minimum wage substantially. But what evidence there is indicates it is worth a try.

Note: the chart above shows percentage changes in the federal minimum wage (blue line) and the unemployment rate (red line). The fact that the red line is mostly in negative territory until the recession of 1953-1954 indicates that unemployment was decreasing.

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