Is 2014 Job Creation Truthfully Faster in States that Raised the Minimum Wage?

I came across a Huffington Post article New Analysis Debunks Claim That A Higher Minimum Wage Kills Job Growth. I was intrigued. I am a huge fan of statistics and data. I was expecting a complex statistical analysis of employment data that compares states with minimum wage increases versus those without. I was sadly disappointed.

While the Huffington Post article is what I stumbled upon, the data originally comes from 2014 Job Creation Faster in States that Raised the Minimum Wage from the Center for Economic and Policy Research (CEPR) blog. CEPR compared the employment growth (data collected from Bureau of Labor Statistics) of all 50 states and Washington D.C from the last five months (August through December) of 2013 to the first five months (January through May) in 2014. On January 1, 2014 13 states raised the minimum wage. Of those 13 states, four states (Connecticut, New Jersey, New York, and Rhode Island) of them pass legislation to raise the minimum wage while the other nine states (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington state) raised the minimum wage at the beginning of the year due to inflation.

The chart below was compiled by CEPR and shows the percent change in employment by state. This graph is the only semblance of data analysis. Three major observations stood out to me from this chart. Firstly, states with minimum wage increases are mixed in with states without minimum wage increases when ranked in order of decreasing employment growth. There is no clear separation between the two just from looking at the graph. Secondly, almost all states had positive employment growth (43/51). Finally, two states with no minimum wage increase had the greatest employment growth, while one state with a minimum wage increase had the greatest employment decline. These are my subjective observations and others might have different observations.

What did the author say? You might have a good guess if you read the titles of the aforementioned articles. Huffington Post said that this data “debunks” the idea that higher minimum wage kills jobs. CEPR said that job creation is faster in states with minimum wage increases. How did they come to this conclusion?

The author concluded that states that increased the minimum wage had faster job growth by comparing the mean job growth from states with and without minimum wage increases. The author reports:

The average change in employment for the 13 states that increased their minimum wage is +0.99% while the remaining states have an average employment change of +0.68%.

This must be the case. Basic arithmetic tells us that 0.99% employment growth is greater than 0.68% employment growth. Unfortunately, basic arithmetic is not the correct tool to determine if means are different. Statistics provides a whole host of tools to compare means. In this case, a t-test is the correct tool to compare the means of employment growth with two groups (states that increased the minimum wage and states that do not increase the minimum wage).

What does the t-test tell us? Not much. The t-test reveals that the mean employment growth for states with a minimum wage increase is not statistically different than the mean employment growth for states without a minimum wage increase (p=0.2135). The figure below shows a boxplot for both groups.

I was curious and further broke down the minimum wage group into two groups. One group pass minimum wage specific legislation while the other group had minimum increases due to inflation. The correct statistical test to use here is an analysis of variance (ANOVA) since we now have three groups of employment growth. The ANOVA results are very clear, minimum wage laws had no statistical effect on mean employment growth (p=0.0543). The figure below shows a boxplot for each group.

The t-test and ANOVA results reveal that there is no statistical difference among employment growth between states with minimum wage increases and those without minimum wage increases. The boxplots help to visualize the variability in employment growth. The overlapping error bars are a strong statistical indicator that there is no difference.

Practically, what does this mean? Not a whole lot. This data does not the support the claim made by CEPR, that increasing the minimum wage causes faster job creation. This data does reveal that job growth is not solely dependent upon minimum wage laws. This makes sense to me. In 2012, only 1.1% of workers made minimum wage. This means that greater than 98% of jobs pay more than minimum wage. Each state has many different economic policies that have a large effect on the local economies. Historical data would need to be analyzed for each state in order to see the effect of minimum wage on employment growth before and after a change in minimum wage legislation.

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3 Comments
  1. “In 2012, only 1.1% of workers made minimum wage.”

    People constantly gripe about the seemingly billions of minimum wage workers in the United States, but as the data suggests… practically no one makes minimum wage. So all this couch-sitter-protesting is much to do about nothing!

    • “…practically no one makes minimum wage. So all this couch-sitter-protesting is much to do about nothing!”

      Not entirely. Union contracts are often tied to minimum wage increases so that when there is an increase in the minimum wage, union wages either rise automatically or the event triggers a contract renegotiation.

      Consequently, even though union workers make significantly more than the minimum wage, they often have an incentive to support minimum wage hikes.

  2. You could also say that those states who naturally have higher employment would be the states more likely to adopt a higher minimum wage because they are playing with house money so to speak, while struggling states aren’t as willing to put anymore downward pressure on employment. Also the correct analysis should be what would the employment level have been without the min wage increase.

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