Saturday, March 14, 2009
Guess what happened between the start of the recession, December 2007, and now? The federal minimum wage jumped $0.70 to $6.55. And guess what is going to happen between now and August 2009? The federal minimum wage will rise another $0.70 to $7.25 (hat tip, reader Milton R.). This probably has implications for the natural of the unemployment rate.
The chart illustrates the federal minimum wage and the unemployment rate.The federal minimum wage had gone unchanged at $5.15/hour since 1997. In Q3 (third quarter) of 2007, the minimum wage started to climb. By July 2009, the minimum wage will have increased $2.10/hour in just two years.
States have their own minimum wage laws, which are often higher than the federal minimum wage. But as you can see here, there are plenty of states that set the minimum wage either at the federal wage, below the federal wage, or have no minimum wage at all. In the latter two cases, the state rate would default to the federal minimum wage.
This is important. The surge in the minimum wage rate implies that some (I don't know exactly how much) of the 3.2% surge in the unemployment rate since December 2007 is probably structural, where the long-run level of unemployment might be higher, rather than cyclical, or due to the recession.