Matt Mastricova’s article last week, “Time to wage war for minimum wage,” defends President Obama’s recent State of the Union proposal to raise minimum wage from $7.25 to $9 per hour by 2015. Mastricova cites studies from the University of California, Berkeley and the Center for Economic Policy and Research, which show that minimum wage increases have no impact on employment. He concludes that minimum wage increases can only be good, as they give higher wages to low-skilled workers. What Mastricova forgets is that the social sciences are not exact sciences.
Running a simple regression of unemployment on minimum wage reveals an R-Squared value of only 0.002. This means that only 0.2 percent of the variation in unemployment can be explained by variation in minimum wage. Put another way, there is an incredibly large subset of factors that have an impact on unemployment; the effect of minimum wage is negligible. Minimum wage didn’t change during the recession, yet we saw unemployment jump above 10 percent in late 2009. Continue reading