Minimum Wage and Unemployment

November 20, 2011

Hypothesis:
An increase in minimum wage will result in an increase in unemployment.

Data:
NZ Statistics Website provides data on unemployment rates in New Zealand.
ACE Pay provides historic data for employers on minimum wage rates with dates of change.

Method:
Minimum wage rates are indicated on the graph of unemployment.

Results:
Unemployment decreased for the first five increases in minimum wage from the period of 2000 to 2004. In 2005, 2006 and 2007 unemployment was relatively steady while minimum wage increased in each of these years. In 2008 and 2009 unemployment increased strongly while minimum wage increased.

Conclusion:
Minimum wage has increased for each year for which data was found from 2000 to 2009. Up to 2007 unemployment decreased, thereafter it strongly increased. There seems to be no direct relationship between an increase in minimum wage and the rate of unemployment in New Zealand.

There is a common myth, repeated so often that most people seem to believe it, that any increase in minimum wage rates would result in an increase in unemployment. This seems to very clearly not be correct. The rate of unemployment is more likely a result of economic strength of the country. If the economy is expanding unemployment will reduce, and if the economy contracts unemployment will increase. This possible relationship would be the next set of data to look at.

Resources:
http://www.acepay.co.nz/minwage.htm
http://www.stats.govt.nz

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