APPENDIX – $15/hr

Appendix

Tables 1 and 2

effect of 15The figures in Tables 1 and 2 were calculated using Current Population Survey–Outgoing Rotation Group (CPS–ORG) data from the National Bureau of Economic Research.[14] Hourly earnings for workers in the CPS–ORG data were calculated using the reported hourly wage of hourly workers, and dividing usual weekly earnings by usual hours worked for salaried workers. Hourly earnings of waiters in bars and restaurants were calculated using the same method as for salaried workers.[15] The author excluded imputed observations, as well as respondents with calculated hourly earnings below $1 per hour or above $200 per hour.[16]

CPS–ORG data show that between 2007 and 2015, median nominal wages for adult (25–59 years old) workers in the U.S. grew by 1.68 percent a year. The author used this inflation factor to convert $15 per hour in 2021 into 2015 dollars ($13.57 per hour).[17]

Table 1 displays the proportion of wage and salary workers in each state whose adjusted earnings are less than $13.57 per hour ($15 in 2021 dollars) in the 2015 CPS–ORG and would thus be affected by a $15 state minimum wage in 2021. This proportion includes agricultural workers since state minimum wages generally cover them and excludes self-employed workers because state and federal minimum wages do not apply to them.

Table 2 displays the proportion of wage and salary workers in each state affected by a federal minimum wage of $15 in 2021 ($13.57 in 2015 dollars), net of state minimum-wage increases. It consequently shows that a $15 federal mandate will have no effect on workers in New York State or Washington, DC, as they will already have $15 mandates that year.[18] Table 2 also excludes workers in the agricultural sector since the federal minimum wage exempts many (though not all) agricultural workers.[19]

15 hour FedThe calculation of total employment losses reported in Tables 1 and 2 followed eight steps:

  1. The author calculated the average percent increase in wages (for affected workers) in each state in the 2015 CPS–ORG necessary to bring every employee to $15 in 2021 dollars ($13.57 in 2015 dollars). For Table 1, that percentage was the average percent difference between their hourly earnings and $13.57. Some states have passed minimum wage increases that will take effect over several years, or indexed their minimum wages to inflation. In Table 2 the figure shows the average percent difference between $13.57 and the greater of affected workers’ actual earnings, or the legislated 2021 minimum wage in their state.[20] All these averages were weighted by total hours worked and thus reflect average pay increases needed per hour worked.
  2. The author estimated total employment in each state for 2021, by taking 2015 total state employment, as reported by the Current Population Survey, and projecting it forward six years using the average annual rate of employment growth in the CPS between 2010 and 2015 in each state.
  3. The author estimated the proportion of all employees directly affected by a $15-per-hour minimum wage in 2021. This calculation followed the methods used to calculate the proportion of directly affected wage and salary employees in Tables 1 and 2, described above, except that it includes self-employed workers in the denominator.
  4. The author estimated the number of workers directly affected by the proposed starting-wage increase in each state by multiplying each state’s estimated total employment in 2021 (from step 2) by the estimated proportion of workers directly affected (from step 3).
  5. The author calculated the ratio of full-time equivalent (FTE) employees to total employment in each state, for workers directly affected by the proposed increase. This calculation treats an FTE job as 40 hours-per-week. So, for example, two employees working 20 hours-per-week represent one FTE employee.
  6. The author estimated the number of directly affected FTE employees in each state by multiplying the FTE-to-employee ratio (from step 5) by total affected employment (from step 4) in each state.
  7. The author calculated the average percent employment reduction among affected workers in each state by multiplying the average wage increase among affected workers (from step 1) by the estimated long-run elasticity of labor demand (–0.677). (This elasticity is discussed in greater detail below.)
  8. The author calculated total employment losses in each state by multiplying the estimated proportionate employment reduction (from step 7) by the estimated FTE affected employment (from step 6).

Note that these calculations only examine directly affected workers (those making less than $1 per hour in 2021 dollars). Additional raises are likely for workers currently making near $15 per hour. Employers generally want to reward more productive workers with pay that is above entry-level rates. For example, roughly a quarter of first-line supervisors of retail sales workers in Tennessee make less than $15 per hour in 2021 dollars.[21] Paying these managers the same starting wages as newly hired employees would eliminate the incentive to work harder to earn a promotion.

However, quantifying the magnitude of “spillover effects” from a $15 mandate is highly subjective. Little empirical data exists to guide estimates of spillover effects so high up the income distribution.[22] Wages will almost certainly increase more than the minimum necessary to comply with the law, but predicting how much more is difficult. To be conservative, this report ignored the consequences of spillover effects. To the extent that wages rise above $15 per hour the numbers in this report understate total job losses.

The sum of the state employment losses from a $15-per-hour federal minimum wage reported in Table 2 is slightly higher than the total national losses reported in a recent Issue Brief by this author (7.1 million vs. 6.9 million).[23] This difference occurs because that report assumed uniform national employment growth of slightly less than 1.4 percent between the present and 2021. This report uses state-by-state growth rates, based on each state’s growth between 2010 and 2015. Many states with lower living costs more heavily affected by a $15-per-hour mandate grew faster than the national average rate. For example, employment in both Florida and Texas grew at more than a 2 percent annual rate over that period. Consequently, the state-by-state employment projections assume greater employment in more heavily affected states, and thus more affected workers and greater job losses, than a uniform national projection does.

Note that these job losses are based on an average estimated elasticity of labor demand. They show approximate magnitudes but are not precise.

Elasticity of Labor Demand

Lichter et al. (2009) report meta-regression estimates of the own-wage elasticity of labor demand that account for publication bias.[24] The coefficients on these estimates imply an elasticity of –0.677 for a study published in 2012 (the most recent year in their data) of long-run unconditional labor demand for low-skilled labor in the U.S., estimated using industry-level administrative panel data and a structural form model.[25]

The author used a long-run labor demand elasticity estimate that accounts for publication bias. Estimates that do not account for publication bias tend to slow a long-run elasticity closer to –1.0.[26] Had this analysis used the larger elasticity it would show even greater job losses.

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