Supporters of increasing the federal minimum wage believe that the current federal minimum wage is too small of an amount to live off of. Critics of raising the federal minimum wage believe that higher minimum wages will cause unemployment rates to increase. This belief is controversial because there are studies that suggest minimum wages do not lead to unemployment rate increases. Because of this uncertainty, it is important to examine other factors that could be impacted by a minimum wage increase. One potential factor is the productivity of workers. I hypothesize that higher minimum wages will lead to higher productivity rates among workers. This productivity rate increase will cause a decrease in unemployment rates. This paper will develop a theoretical model that includes topics such as different types of competition, the free effort hypothesis, partial gift exchange, reciprocity, and intention. After developing the theoretical framework, I use an OLS regression to test the productivity rates and unemployment rates of 150 different metropolitan areas. The findings show that productivity rates are higher in areas with minimum wages above the federal minimum wage; but the results regarding unemployment rates show that metropolitan areas with minimum wages above the federal minimum wage have higher unemployment rates compared to states using the federal minimum wage.
Sparks, Jacob, "The Impacts of Minimum Wage Increases on Productivity and Unemployment Rates" (2018). Senior Independent Study Theses. Paper 8030.
Behavioral Economics | Labor Economics
Bachelor of Arts
Senior Independent Study Thesis
© Copyright 2018 Jacob Sparks