Raising the minimum wage is a policy discussion ripe with tradeoffs. On the one hand, a hike in hourly pay could help some low-income workers. On the other, small business owners would be hurt and, as a result, would likely employ fewer workers. The tradeoff is highlighted in the Mountain States.
Washington state, for example, has hiked its minimum wage to $16.28 per hour. Wyoming and Idaho have kept the minimum wage at the federal minimum of $7.25, while Montana’s minimum wage sits at $10.30. Data from the Bureau of Labor Statistics shows Washington’s unemployment rate is 71% higher than Wyoming’s, 55% higher than Montana’s and 45% higher than Idaho’s.
Economists across the political spectrum agree there are tradeoffs. The Congressional Budget Office (CBO) says:
“In general, increasing the federal minimum wage would raise the earnings and family income of most low-wage workers and thus lift some families out of poverty—but doing so would cause other low-wage workers to become jobless, and their family income would fall.”
The CBO’s online tool allows users to plug in a minimum wage target and experience the consequences. For example, if the minimum wage were increased to $12 per hour, CBO data shows a decline in average weekly U.S. employment, as well as a drop in real family income.
Research from the Harvard Business Review had similar findings. It concluded:
“For every $1 increase in the minimum wage, we found that the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decrease by 20.8%. For an average store in California, these changes translated into four extra workers per week and five fewer hours per worker per week — which meant that the total wage compensation of an average minimum wage worker in a California store actually fell by 13.6%. This decrease in the average number of hours worked not only reduced total wages, but also impacted eligibility for benefits."
Government estimates seem to track with real-life data in cities and states that have raised their minimum wage.
The University of Washington conducted a review of Seattle's increase of the minimum wage to $15, phased in over several years. Researchers wrote, "those earning less than $19 an hour saw wages rise by 3.4% once the city’s minimum wage was $13, while experiencing a 7.0% decrease in hours worked."
In other words, the hike was costing jobs. In fact, the research showed there would be 5,000 more jobs in Seattle if the hike had not been adopted.
Any minimum wage increase is particularly harmful to young people. In Indiana, a $2.10 wage increase was followed by a nearly eight percent decline in the number of 16- to 19-year-old workers.
The Wall Street Journal recently summed up the problem:
"Higher minimum wages often price teens out of the job market because they have the least skills and experience. Teens then miss out on valuable training and don’t learn important life lessons, such as showing up on time and being courteous to customers."
While some businesses might be able to afford the hit of a minimum wage hike, others will not. Restaurants, retail and hospitality, for example, run on very low profit margins. The impact there is likely to be much more severe.