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Will Raising the Federal minimum Wage Help Us?

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During the Great Recession the nation lost 8.7 million jobs between December 2007 to June 2009. Since that time those jobs have come back. It is no strange oddity that if the jobs are back why have the good times not returned? The trouble is that the post-recession jobs are have been largely in hospitality, restaurants and temp agency jobs. These sectors are low paying and with low paying jobs a full economic recovery will take more time. To complicate the recovery labor participation has been dropping off as frustrated job-seekers are unable to find a job simply give up.

There has been a lot of buzz about raising the Federal Minimum wage from $7.25 per hour to $10.10 per hour. One way to help move the economy forward is to increase those wages. Only congress can change the Federal Minimum wage and Congress has shown little desire to move forward. Individual states can increase their minimum wage and some have. There are 38 states considering legislation this year.

Earlier this year the President used executive order to move the Federal Minimum wage paid on government contracts to $10.10/hr. At this time no state has a minimum wage is $10.10/hr. There are 23 states that have a minimum wage above the Federal Minimum of $7.25/hr. There are 18 states that have a minimum wage equal to the Federal Minimum wage. Five states have no minimum wage and four states have a state minimum below the Federal Minimum. These states at or below the $7.25/hr are required to pay the Federal Minimum wage.

The States with historically low unemployment see little need for increasing the minimum wage. Only 20% of the states with the lowest unemployment in the nation had a state minimum wage higher than the current Federal Minimum wage of 7.25%. The statesd with the lowest unemployment and their minimum wage looks like this:
1. North Dakota - Unemployment 2.7% - Minimum Wage $7.25/hr
2. Nebraska State Unemployment 3.5% - Minimum Wage $7.25/hr
3. Utah State Unemployment 3.5% -Minimum Wage $7.25/hr
4. Vermont State Unemployment 3.5% - Minimum Wage $8.73/hr
5. South Dakota State Unemployment 3.8% - - Minimum Wage $7.25/hr
6. Wyoming State Unemployment 4.0% - Minimum Wage $5.15/hr
7. Hawaii State Unemployment 4.4% - Minimum Wage $7.25/hr
8. Iowa State Unemployment 4.4 % - Minimum Wage $7.25/hr
9. New Hampshire State Unemployment 4.4% Minimum Wage $7.25/hr
10. Minnesota State Unemployment 4.5% - Minimum Wage $8.00/hr

With the recent popularity of increasing the minimum wage Hawaii (#7) plans to increase the state minimum wage to $10.10/hr in 2018 and Vermont (#4) plans to increase the state minimum wage to $10.50/hr in 2018.

Contrasting states with high unemployment seem to have more employee friendly laws that can work to discourage new hiring. States with high unemployment are trying to jump start their economy by tinkering with the state minimum wage. Among the states with the highest unemployment they are 60% more likely to have a higher minimum wage than the Federal Minimum of $7.25/hr. Looking at the states with the highest unemployment and state minimum wage looks like this:

40 Oregon Unemployment 6.8% - Minimum Wage $9.10/hr
41 Arizona Unemployment 6.9% - Minimum Wage $7.90/hr
42 Illinois Unemployment 7.1% - Minimum Wage $7.25/hr
43 California Unemployment 7.4% - Minimum Wage $9.00/hr
44 District of Columbia Unemployment 7.4% - Minimum Wage $9.50/hr
45 Georgia Unemployment 7.4% - Minimum Wage $5.15/hr
46 Kentucky Unemployment 7.4% - Minimum Wage $7.25/hr
47 Michigan Unemployment 7.5% - Minimum Wage $7.40/hr
48 Nevada Unemployment 7.7% - Minimum Wage $8.25/hr
49 Mississippi Unemployment 7.9% - Has no State Minimum Wage
50 Rhode Island Unemployment 7.9% - Minimum Wage $8.00/hr

States with the highest unemployment have shown more interest in increasing the state minimum wage. California (#44) has approved increasing the state minimum wage to $10/hr in 2016. Michigan (#47) goes to $9.25/hr in 2018. Connecticut (#39) will increase the state minimum wage to $10.10/hr in 2016 while District of Columbia (#44) goes to $11.50/hr in 2016.

It is believed by economists that initially increasing the minimum wage $10.10/hr will help give an boost to the economy. For those who are working below the $10.10/hr Federal Minimum wage an increase means an instant raise. Those who are already at or near the $10.10/hr could also see a slight increase in pay. The sudden boost in income would then encourage spending which would then jump start the economy.

But economists also point out that employers will hire fewer workers and inflation could follow the spending surge causing a new drag on the economy. Thirteen states already have a cost of living index which increases their minimum wages automatically to stay in line with inflation. Three of those states Oregon (#41), Arizona (#42) and Rhode Island (#50) have some of the highest unemployment while among the top ten states with the lowest unemployment only Vermont (#4) uses inflation to change state minimum wage.

Additionally, increasing the minimum wage will inspire technology to eliminate some jobs. The Congressional Budget Office reported earlier this year that a minimum wage of $10.10/hr would cost the country 500,000 jobs. Contrasting state unemployment data with state minimum wage law shows state with high unemployment already have higher state minimum wage laws. Having higher state minimum wages has not brought jobs to the states with the highest unemployment.

The most recent Bureau of Labor Statistics data shows that each month there are about three people looking for work for every job opening. Now is not the time to second guess the slow recovery. All in all increasing the Federal Minimum wage is not the solution to economic recovery.

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