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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.

Wednesday, September 7, 2011

Labor Day: U.S. Has Fifth Lowest Union Density in the OECD

As was reaffirmed by Vice-President Biden on Labor Day, the American middle class was originally built by the labor movement. That unions have been declining in this country for decades is not exactly news. But where does the U.S. stand relative to the other industrialized democracies of the Organization for Economic Cooperation (OECD)? The obvious measure of the strength of the labor movement is the proportion of the workforce that is unionized, usually referred to as union density (although it is well known that the French labor movement is far stronger than its low union density would suggest).

The short answer is that the U.S. ranks 30th of the 34-member OECD. U.S. union density stood at only 11.4% in 2010, significantly below the OECD average of 18.1% last year. The only OECD countries with a lower proportion of labor organized are Estonia (8.0%), France (7.6% in 2008), South Korea (10.0% in 2009), and Turkey (5.9% in 2009).

Examining some of the data, we see that the U.S. is not alone in seeing a decline in union density:

Country                       Density 1999          Density 2010


Canada                       28.1%                    27.5%
France                          8.1%                      7.6% (2008)
Germany                     25.3%                    18.6%
Italy                            35.4%                     35.1%
Japan                          22.2%                     18.4%
United Kingdom           30.1%                     26.5%
United States               13.4%                     11.4%

Other Countries

Australia                      24.9%                     18.0%
Finland                        76.3%                     70.0% (highest density in 2010)
Ireland                         39.0%                      30.7% (2009)
Sweden                       80.6%                      68.4% (highest density in 1999)
OECD Average             21.0%                     18.1%

Source:, then click on “Labour,” “Trade Union,” and “Trade Union Density.”

The reasons for this general trend are in dispute, though globalization is one likely culprit. I'll have to leave that debate for another time.

For now, I simply want to emphasize how low the American unionization rate is, and how that bodes ill for the middle class. We are, of course, currently seeing an attack on public sector unions in many states, which threatens tens of thousands of middle class jobs and reduced pay and benefits for hundreds of thousands of workers.

To end on a more positive note, it's interesting that Canada, a country like the U.S. in many ways (in particular, economists would describe as both relatively “labor-scarce” by global standards, an issue I will discuss in more detail in future posts), has not seen the same sort of deterioration in union density that the U.S. has. Paul Krugman, in The Conscience of a Liberal, makes a great deal of this comparison to argue that union decline in the U.S. was not inevitable and could be reversed. I hope he's right.

Tuesday, September 6, 2011

Labor Day; U.S. Has Weakest Employment Protections Among OECD and BRICS

This is the first in a series of posts on the sorry state of American labor. International comparisons make this very clear. U.S. workers are more vulnerable than workers in any Organization for Economic Cooperation and Development (rich industrialized democracies) members or even the BRIC countries (Brazil, Russia, India, and China, with Estonia, Indonesia, and South Africa included as comparisons for good measure) to being fired unfairly, to not getting severance pay, to getting the least notice on mass layoffs or being fired, to being stuck on a mouse wheel of temporary positions, altogether a total of 21 measures that the OECD used to determine how well workers' rights at work are protected.

Not only is the United States in last place, it isn't even close. In the oldest version of the OECD's employment protection measure, for which data goes back to 1985, the U.S. score in 2008 was 0.21, unchanged since 1990. The next lowest were Canada and the United Kingdom at 0.75, while the other G-7 countries clock in with Japan (1.43), Germany (2.12), France (3.05), and Italy (1.89). Note that this measure uses only 14 elements; the full 21-element version begins only with 2008. The OECD considers the newer measure better, and the United States, while still last, does not lag quite so badly: U.S. (0.85), Canada (1.02), U.K. (1.09), Japan (1.73), Germany (2.63), France (3.00), and Italy (2.58). The unweighted OECD average on the new measure is 2.24 in 2008, while Brazil is 2.27, Russia 1.80, India 2.63, and China 2.80.

Employment Protection in 2008 in OECD and selected non-OECD countries*
Scale from 0 (least stringent) to 6 (most restrictive)

Click here to downlad the data

Source: OECD

The bottom line is that American workers enjoy the least protection out of all major economies in the world. Protections against individual firing, collective dismissals, and ability to get off temporary employment are as weak as they can be. Happy Labor Day!

Data notes: The basic methodology (with a link to the full methodology) is here. 

The raw data for these measures is at OECD StatExtracts, then click on “Labour” in the left-hand menu to expand the category, then “Employment Protection,” and finally “Strictness of employment protection – overall.”