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Thursday, September 8, 2011

Labor Day: Of Nine OECD Members with a Higher Minimum Wage than U.S., Seven Have Lower Unemployment Rates

When Michele Bachmann says she would “consider” lowering the minimum wage, she tapped into the long-standing theme of conservative economists that the minimum wage is a job-killer. The only problem is, careful statistical research has shown that this simply isn't true. In the 1990s, economists David Card and Alan Krueger demolished the methodologies of prior statistical studies showing a negative impact as well as conducting original research comparing low-wage employment within a two-state metropolitan area when one state raised its minimum wage, finding no negative impact. (A useful summary of Card and Krueger's long-run influence on the debate can be found in a post by Arindrajit Dube at Rortybomb [h/t Mark Thoma].)
But another way of showing the lack of a negative effect, following my “Labor Day” theme of international comparisons, is to look at the minimum wage and unemployment rates among the industrialized democracies of the Organization for Economic Cooperation and Development (OECD). Only 21 of the OECD's 34 members have economy-wide minimum wage rates, as shown in the table below. This shows the “real” (inflation-adjusted) hourly minimum wage for each of the 21 countries, expressed in 2005 U.S. dollars and adjusted for each country's price level in a measure called “purchasing power parity” or PPP. (Under straight exchange rates, Belgium, France, Ireland, Luxembourg, and the Netherlands all have minimum wages above $10 per hour in 2005 dollars.) The data are for 2008, the most recent year available. Unemployment data are for June 2011, the most recent month available for most of the countries (exceptions are noted in the table).

In this list, the United States comes in with only the 10th highest minimum wage of the 21 countries. This is true even after the increase to $7.25 in 2009, which comes to $6.26 in 2005 dollars. In addition to the five countries mentioned above, Australia, Canada, New Zealand, and the United Kingdom have a higher minimum wage than the U.S. If the story told by Michele Bachmann and conservative economists were true, we would expect that they would all have higher unemployment rates than the U.S. In fact, however, only France (9.8%) and Ireland (14.3%) are higher, while the other seven have lower unemployment rates, ranging from 1.4 points lower (UK) to 5.1 points lower (Netherlands). We should remember from my last two posts in this series that all of these countries have stronger employment protections than does the United States, and that only France has lower union density.

Real hourly minimum wages

Data extracted on 09 Sep 2011 00:21 UTC (GMT) from OECD.Stat


8.59   4.9%

8.23   7.4%

6.43   7.4%
Czech Republic

2.99    6.5%

8.79   9.8%

4.86   15.0% (March 2011)

2.61   9.9%

7.55   14.3%

5.22   4.6%

4.36   3.3%

8.95   4.3%

0.79   5.8%

8.22   4.1%
New Zealand

6.99   6.5% (Q2 2011)

3.21    9.5%

3.31   12.5%
Slovak Republic

..        13.4%

4.07   21.0%

2.96   9.3% (May 2011)
United Kingdom

8.06   7.8% (May 2011)
United States

5.59   9.2%

Notes: Unemployment rate is for June 2011 unless otherwise noted. U.S. minimum wage rose to $6.26 in 2005 dollars with the 2009 increase to $7.25 in nominal dollars. The Slovak Republic's minimum wage was $1.36 in 2006, the most recent year available.


For 2008 real minimum wage in US$ purchasing power parity, click on “Labour,” then “Earnings,” then “Real hourly minimum wages,” then adjust the “Series” to “In US$PPP.”
For June 2011 unemployment rates, click on “Labour,” then “Labour Force Statistics,” then “Labour Statistics (MEI),” then “Labour Force Statistics (MEI),” then “Harmonized Unemployment Rates and Levels (HURs),” then adjust the “Subject” to “Harmonized Unemployment Rate (HUR).”

Raising the minimum wage would add to the purchasing power of many people who will spend their money at a time when the economy sorely needs demand, as economist Heidi Shierholz of the Economic Policy Institute points out. Meanwhile, the best research shows that a higher minimum wage does not destroy jobs as economists generally thought before Card and Krueger's work. The data presented here shows that American workers at the bottom of the wage scale earn less than their counterparts in a number of other countries, and overall those countries do not see more unemployment as a result. We should, therefore, resist any calls to lower our minimum wage.


  1. Worth noting that, of the two exceptions, Ireland is in a deep slump due to the financial crisis - unemployment was much lower before 2008.

  2. That's quite right. However, there is some debate over how sustainable Ireland's economic performance was. Peadar Kirby's book, Celtic Tiger in Distress (now in a new edition, Celtic Tiger in Collapse) is a good example of a skeptical view.