Minimum Wage Increase

The last increase on July 24, 2007 was the first of three steps of the Fair Minimum Wage Act of 2007. It was signed into law on May 25, 2007 as a rider to the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007. The act will raise the federal minimum wage twice more: to $6.55 per hour on July 24, 2008, and to $7.25 per hour on July 24, 2009. A strong majority of American economists believes the minimum wage increases unemployment, though there is disagreement as to the magnitude. As a policy question in 2006, the minimum wage has to some extent split the economics profession with just under half believing it should be eliminated and a slightly smaller percentage believing it should be increased, leaving rather few in the middle. Some idea of the empirical problems of this debate can be seen by looking at recent trends in the United States. The minimum wage fell about 29% in real terms between 1979 and 2003. For the median worker, real hourly earnings have increased since 1979, however for the lowest deciles, there have been significant falls in the real wage without much fall in the rate of unemployment. Some argue that a declining minimum wage might reduce youth unemployment (since these workers are likely to have fewer skills than older workers). Comparison of the minimum wage to unemployment among teenagers in the United States. In the data shown here, a higher minimum wage was correlated with higher unemployment among teenage workers relative to adult workers. Comparison of the minimum wage to unemployment among teenagers in the United States. In the data shown here, a higher minimum wage was correlated with higher unemployment among teenage workers relative to adult workers. Overall, there is no consensus between economists about the effects of minimum wages on youth employment, although empirical evidence suggests that this group is most vulnerable to high minimum wages.