An evaluation of the relationship between minimum wage and unemployment: does the local cost-of-living matter?

ABSTRACT

This article examines the relationship between federal, state and municipal minimum wage laws, local cost-of-living (COL) and the unemployment rate. It finds a strong statistically significant positive relationship between minimum wages and unemployment once COL is taken into account. Our results suggest that federal minimum wage policy is likely to have more harmful effects in rural/low cost areas.

KEYWORDS:

• Minimum wage
• cost-of-living
• unemployment

JEL CLASSIFICATION:

• J2
• J6

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ During this period, we observe city MW laws for Albuquerque and Santa Fe, NM; San Jose, CA; and San Francisco, CA (city/county).

² These professions include the following occupation groups: (1) architecture and engineering, (2) computer, mathematical, life and physical science, (3) social science, community and social service and legal, (4) education, training and library, (5) registered nurses, (6) pharmacists, (7) art, design, entertainment, sports and media.