Increase in the Minimum Wage on the Economy

Running head: MACROECONOMICS 1


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An Empirical Study on the Effect of an Increase in the Minimum Wage on the Economy

Christopher A Teague

Embry-Riddle Aeronautical University


An Empirical Study on the Effect of an Increase in the Minimum Wage on the Economy


I. Introduction

a. History of Minimum Wage

b. The Minimum Wage Debate in America

c. Thesis: An increase of the minimum wage will reduce employment rate because of the resultant effect of the employers trying to reduce their costs of labor leading to a decline in economic performance.

II. Significance of the Topic

a. Social, political, and economic issues associated with Minim Wage

III. Minimum Wage Effects on Employment Rate

a. Evaluation of the following hypotheses;

i. Increasing minimum wage increases employment rate

ii. Increasing minimum wage has no effect on employment rate

iii. Increasing minimum wage reduces minimum wage

IV. Effects of Employment Rates on the Economy

a. Effects on disposable income and spending power

b. Effects on GDP

c. Effects on Poverty

V. Conclusion



Allegretto, S., Dube, A., Reich, M., & Zipperer, B. (2017). Credible research designs for minimum wage studies: A response to Neumark, Salas, and Wascher. ILR Review70(3), 559-592.

This article creates a different perspective to the arguments of a majority of economic analyses of the effect of minimum wage increase on the economy. The authors evaluate and critique a 2014 publication by Neumark, Salas, and Wascher, which found that minimum wage increases cause a reduction in the employment rate for minimum wage earners. They found that the study discarded too much information that would have yielded different results. Allegretto (2017) found that the highest employment declines occur with a decrease in the minimum wage.

Clemens, J., & Strain, M. R. (2017). Estimating the Employment Effects of Recent Minimum Wage Changes: Early Evidence, an Interpretative Framework, and a Pre-Commitment to Future Analysis (No. w23084). National Bureau of Economic Research.

This article evaluates the minimum wage increases between 2013 and 2015 that occurred in different states in the United States to determine the possible effects that they have had on the employment rate of the country. The authors suggest that the employment of young adults with less that High School education achievement is reduced by a reduction in the minimum wage. This article suggests that a minimum wage will have a negative effect in the employment rate. It is a useful scholarly source in showing the effect of the minimum wage increase on the economy.

Ingraham, C. (2018, January 11). What does $15 minimum wage do to the economy? Economists start to find out. The Washington Post. Retrieved from:

This article confirms the hypothesis that a higher minimum wage will reduce the employment rate for minimum wage workers. It evaluates the arguments of liberal economists who believe that increasing the minimum wage will be a boost to employees and the economy but provides evidence of research from California and Seattle, which have shown a reduction in the employment rate and number of hours of work for minimum wage workers. This confirms that increasing the minimum wage could have an effect on the economy’s employment rate.

Jardim, E., Long, M. C., Plotnick, R., Van Inwegen, E., Vigdor, J., & Wething, H. (2017). Minimum wage increases, wages, and low-wage employment: Evidence from Seattle (No. w23532). National Bureau of Economic Research.

The state of Seattle through the Seattle Minimum Wage Ordinance raised the minimum wage from $9.47 to $11 per hour. This article evaluates the possible effect this change had on the Seattle economy in terms of the employment rate and the hours of work. The study found that the change caused a reduction in the employment rate and hours worked leading to a reduction in the total payroll. This article suggests that a reduction in the minimum wage could lead to a reduction in the economy’s employment rate in the long-run. However, the effect is variant in different industries.

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