Will an increased minimum wage impact business negatively?

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The short answer: probably, but not by much.

Sen. Ben Altamirano (D-Silver City) introduced a minimum wage bill again this year (the Senate approved it on Friday), so the naysayers are out in force. We’re always treated with scare stories of businesses laying off workers and other myths:

A small point of order, entry-level jobs will be the only recipients of this wage hike. That means, fewer opportunities for advancement, and as obvious of a concept as it seems, the sad reality is that another generation of New Mexicans will be forced to look for advanced jobs outside of New Mexico. New Mexico already has an abundance of entry-level jobs.

Now, before we get started with some specifics, let’s see what the Legislative Finance Council said in it’s fiscal analysis (PDF) of SB 324:

Increasing the minimum wage is not without cost to business. The estimate of those costs are controversial and often rely on anecdotes rather than statistics. However, most studies have shown relatively minor impacts to business. EPI estimates that, not surprisingly, the leisure and hospitality industry will be most impacted but the estimated impact is an increase of one percent.

For all workers, the increase is 0.2 percent as a share of sales. A report by the Employment Policies Institute, a non profit in Washington DC that receives funding from the food and restaurant industry reports that there is a negative employment impact particularly among minorities.
(emphasis mine)

So, though businesses will be impacted negatively (more on that in a bit), who will benefit? Nationally, here are the numbers:

Analysis of the 2005 Current Population Survey reveals that the workers potentially affected by a minimum wage increase are mainly adults who typically work full time and provide significant income to their families. If the federal minimum wage were increased to $7.25 per hour by 2008, 14.9 million workers would see their wages rise. The vast majority (80%) of workers affected are adults age 20 and above. Twenty-six percent of these workers are parents, and as a result over 7.3 million children of low-wage workers would see their parents’ income increase if the federal minimum wage was increased to $7.25 per hour by 2008.

Furthermore, the earnings of minimum wage workers are essential to their families’ total income. While not all minimum wage workers are poor or are the sole breadwinner for their families, it is striking how important low-wage workers’ income is to their economic well-being. On average, families with affected workers rely on those workers for over half (59%) of the families’ total earnings. Nearly half (46%) of all families with an affected worker rely solely on the earnings of those workers.

So, only 20 percent of those affected are teenagers, while minimum-wage workers account for more than half of their families’ income. Seems like a group that could use some help. But what about the claims of upward mobility, that workers will be stuck in entry-level jobs? Well, according to a labor market analysis (PDF) completed by the Center for Economic and Policy Research:

Finally, policy also plays a role. Workers who live in states that have enacted a state minimum wage higher than the federal minimum wage have a lower probability of staying in a low-wage job.

Back to the business impact — what does economist Kash Mansori deduce when he looks at the facts:

But what this data does suggest is that any effect of raising the minimum wage on employment levels is almost certainly tiny, and generally swamped by other factors in the economy that influence employment much more strongly. The burden of proof is on those who think that higher minimum wages do indeed cause employment to fall, and as hinted at by the charts and tables presented here, it’s surprisingly tough to come by such evidence.

Indeed, actual evidence that a high minimum wage impacts jobs is hard to find. It’s rather easy, however, to find data to suggest the opposite. For example, Hawaii has a high minimum wage and the lowest unemployment in the country. Florida’s wage is indexed to inflation — the Golden State is ranked No. 9 for the percentage of workers employed. Mississippi, on the other hand, has no minimum wage, and the highest unemployment.

And speaking of Florida:

Before last year’s elections, a political action committee backed by the likes of Publix Super Markets and Outback Steakhouse had some hair-raising predictions about the effect of bumping up the minimum wage.

Thousands of jobs would be lost if voters increased the state’s rock-bottom wage to $6.15 from $5.15, said one e-mail sent out by the Coalition to Save Florida Jobs.

Jobs would be outsourced overseas, the e-mail said. Even companies that paid above the minimum wage would be forced to raise pay for everyone, said retailers and restaurants that opposed the amendment.

Today, though, it’s hard to find much wreckage in the Florida retailing and restaurant industries, the two groups that bankrolled the Coalition to Save Florida Jobs.

Aside from all that, why bother raising the minimum wage? It’s an economic question, right, so why don’t we let the market figure it out? Well, the Federal Reserve is always willing to help the market out when wages become a problem:

Wages have risen so swiftly that some economists worry that they could push inflation up on their own, by forcing companies to raise prices. Last week, the Federal Reserve chairman, Ben S. Bernanke, warned that the central bank might have to raise interest rates again. “One factor that we are watching carefully is labor costs,” he said.

So, we know companies are being looked after. But, again, why raise the minimum wage? Well, perhaps we don’t want it lagging too far behind the federal poverty level:

Every day that Congress fails to enact a higher minimum wage, workers lose purchasing power. However, if the minimum wage bill currently under debate in the Senate (HR 2) were immediately passed, this gap would be significantly reduced. In 2009, this bill would raise full-time minimum wage workers above the poverty line for a family of two for the first time in over a decade. While this modest bill would still place minimum wage workers 18% below the poverty line for a family of three, it would provide much needed relief to low-wage workers and their families.

For the first time in a decade? You’ve got to be kidding me! Why is this even a debate?

Scare stories aside, we’ve seen time and time again, in states and municipalities, that an increased minimum wage helps those who need help the most, and doesn’t necessarily impact business negatively. It’s time to stop the chicken little act.

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