President Obama and minimum wage proponents claim that raising the minimum wage is not just good for workers but helps the overall economy by adding jobs. However, he is working from flawed analysis. It’s true that states that raised their minimum wage also saw job growth earlier this year. However, it’s coincidence rather than causation.
In a recent speech, President Obama chirped, "We should be raising the minimum wage to make sure that more workers who have been working full-time shouldn’t be living in poverty … When you hear folks saying, well, if you raise the minimum wage that's going to be fewer jobs — it turns out the states that have raised the minimum wage have had faster job growth than the states that haven’t raised the minimum wage."
That would seem to contradict economic principle which finds that as the cost of labor rises, employers will want less of it and either shed workers, cut hours or forego hiring new workers at the higher cost. So is the President right about job growth among higher minimum wage states? Yes, but there’s a big asterisk.
A new study examines government data that finds higher than average aggregate job growth in states that increased their minimum wage from January through June. According to the Department of Labor, 12 of the 13 states that increased their minimum wages at the beginning of this year averaged slightly higher job growth (0.85 percent) than the 37 states whose minimum wage did not increase (0.61 percent).
However, there are other factors that play a role in the job growth apart from -or despite- the wage increase. Some of the states with high job growth and higher minimum wage are just rebounding from the greatest job losses during the Recession, such as Arizona and Florida. In five of the states that raised their minimum wage, experts had predicted strong job growth due to specific industries.
The report concludes:
Even if one believed six months is sufficient time to gauge the impact of an economic policy, such as changes in the minimum wage and state job growth, the data shows there is no cause-and-effect connection between states that increased the minimum wage this year and job creation in those states.
Out of the 13 states that increased their mandated minimum wage, 12 experienced job growth in 2014. Of those, only four ranked among the top states for job growth. National experts predicted these four states would have the nation’s strongest job growth this year as the result of thriving industries, well before these states’ minimum wage increase went into effect.
Many economic factors account for the growth of a state’s total job market.
Most of these are too large to be affected by modest increases in a state’s minimum wage. Any influence of small changes in a state’s mandated wage policy is swamped by larger forces, such as interest rates, industry dynamics, international markets, energy prices and trends in the national economy.
It’s easy to interpret the data in a way that favors your policy agenda, but as Americans, we are right to question what goes against established principles and history.
The President would like for us to swallow these numbers as evidence that we must embrace raising the minimum wage. However, even the Washington Post’s Politifact takes him to task for drawing conclusions on a small slice of data in a very limited timeframe of a few months.
Let’s not forget that most of the states that gained the greatest job growth during the period being referenced did not increase their minimum wage this year – the top three states with the highest job growth being North Dakota, Nevada, and Utah.
Some liberals are not as concerned about rightly interpreting the data as much as they are about pushing an agenda and winning votes to their side. Hopefully, common sense and good economic principle will continue to win out. For the millions of unemployed Americans, we need to knock down any barriers to them finding work. That includes overly expensive minimum wage increases.