Minimum Wage and Unemployment Rates: A Study of Contiguous Counties

The Fair Labor Standards Act of 1938 (“FLSA”) established a uniform requirement that covered workers be paid a base amount per hour throughout the nation. It was designed to exclude from interstate commerce goods produced under “conditions detrimental to the maintenance of the minimum standard of living necessary for health, and general well-being” and to prevent the distribution of goods in interstate commerce, the production of which would perpetuate substandard labor conditions.The codification of such a requirement sparked, and continues to spark, an impassioned economic and political debate. Specifically, the statute‟s legislative history suggests it was enacted to improve the plight of the working poor. While proponents and critics may agree on such a laudable end, they argue vehemently about the efficacy of the chosen means. Not only are the intended consequences of the Act debated, but the alleged unintended consequences are controversial as well. This paper reviews the history of federal minimum wage legislation,along with the controversy that persists concerning its economic and social justifications. It also explores state laws that mandate a higher minimum wage rate than the federal requirement, presumably to further those same goals.The paper then reports the results of a study completed by the authors which analyzed the unemployment rates in contiguous counties with different minimum wage rates in the Pacific Northwest. It compared unemployment rates in geographically contiguous counties of the two states that had the largest difference in minimum wage rates, both in absolute terms ($2.48) and as a percentage of the federal minimum wage (48%). The study examined this gap in the context of a consistent increase in one state's minimum wage rate over several years, while the other state‟s wage rate remained unchanged. The analysis of the data reveals that, from an economic perspective, there is a strong correlation between a higher legislated minimum wage rate and a higher unemployment rate. The results of this study suggest that, because of this dis-employment effect, minimum wage laws indeed may frustrate the goals advanced as their justification, and that alternative forms of aid to workers, who are at (or below) the poverty line, should be explored.

Find article at Gonzaga Law Review.