Update: WSJ Editorial on the Minimum Wage; Excess Teen Unemployment Rose w/Min Wage
Yesterday I featured the Wall Street Journal editorial on the minimum wage (WSJ here and CD post here), and it's generated some criticism (see one example here). The top graph above was my version of the WSJ graph that accompanied its article, showing the relationship between teenage unemployment rate and the increases in the minimum wage between 2002 and 2010. It's true that unemployment rates for all groups were rising over that period, and the rising jobless rate for teens might have been because of the general economic slowdown and not necessarily as a result of the minimum wage hikes, and that's a valid criticism.
However, the bottom graph attempts to better isolate the effects of the minimum wage increases between 2007 and 2009 by plotting the difference between the teenage jobless rate and the overall jobless rate, i.e. "excess teen unemployment," and the minimum wage. During the 2002-2007 period when the minimum wage was $5.15 per hour, teenage unemployment exceeded the national jobless rate by about 11% on average. Each of the three minimum wage increases was accompanied by about a 2 percentage point increase in the amount that the teenage jobless rate exceeded the overall rate, from 11 to 13% after the 2007 increase, from 13% to 15% following the second hike and from 15% to 17% following the last increase. The 17.5% "excess teen unemployment" in October 2009 was the highest on record, going back to at least 1972, and was almost 5 percent higher than the peak teen jobless rate gap in the last recession (12.7% in June 2003).
Remember that unskilled minimum wage workers are in direct competition with skilled workers. Especially during an economic downturn, unskilled workers have a potentially powerful weapon and advantage that can give them a competitive edge over skilled workers in a weak labor market - low wages. But between 2007 and 2009, politicians took away the competitive advantage of unskilled workers at the time they need it most, by boosting the minimum wage for unskilled workers by 42%, and essentially pricing them right out of the worst economy and labor market since the early 1980s.
Bottom Line: Economic theory and empirical evidence suggest that the overall effect of a minimum wage increase is always negative, on net, and can never be positive, on net. So the only real disagreement is how negative the effect will be, not whether it's negative on balance.
After all, if minimum wage laws could have positive net effects and politicians can legislate the creation of wealth with artificial price controls, why are they always being so stingy and miserly with such pitifully small increases; why don't they boost the minimum wage for unskilled workers up to something more respectable like $25, $50 or $75 per hour?