The Impact of the Minimum Wage on Unemployment
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Classical microeconomic theory consistently suggest that through modelling the labor market in a supply and demand point of view, the minimum wage acts as a binding price floor that if set above the “equilibrium” wage could manifest in a labor surplus, otherwise known as unemployment. This cross-sectional study uses state-level data to determine if there is a statistically significant relationship between the minimum wage and the unemployment rate. The study also controls for educational attainment, population growth, GDP growth, per capita GDP growth, state share of urban population, and changes in the per capita personal consumer expenditure. The results of the study show that the initial hypothesis that agrees with microeconomic theory is not supported by the data. Alternatively, educational attainment rates and the per capita state GDP emerge as more reflective indicators of the unemployment rate.