The Effect of Minimum Wage and Unemployment across Varying Economic Climates
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This paper aims to model and quantify the relationship between minimum wage and unemployment rate. Both microeconomic and macroeconomic theory dictate that unemployment rate will increase with an increase in the minimum wage. This economic relationship is tested on a state-by-state basis in the United States from 2002 to 2012 based on data obtained from the bureau of labor statistics. This time period is broken up into three models: pre-recession, recession, and post-recession. The simple regression models made the conclusions that minimum wage has an effect on unemployment. For the multiple regression models, it was concluded that minimum wage had a significant effect on unemployment when the economy was unstable, during the recession and post-recession.