Nationwide, such state minimum-wage hikes would result in the loss of approximately 9 million jobs.
Ed. Note: One of the most effective tools that establishment progressives have in their War on American Workers is misinformation. Here is something they don’t tell you, but can be checked if you just do the math.
JOB LOSSES is the most inevitable outcome of the $15/hr. national minimum wage that will hurt far more low-income workers, especially entry-level workers, than it will help. Here is why:
Companies hire workers when the additional earnings their labor creates exceeds the cost of employing them. Starting wages of $15.00 per hour mean full-time employees must create at least $38,700 a year in value for their employers (including wages, employer payroll taxes, and Obamacare-mandate penalties).
Such a high hurdle would make it much harder for less-experienced and less-skilled workers to find full-time jobs. Many of these workers are not yet productive enough to create that much value for their employers and businesses will not hire them at a loss.
Republished from Heritage.org, by James Sherk, August 17, 2016. Image credit: PrescottEnews.com
About the Author
Researchers have paid little attention to the state-by-state impact of a $15-per-hour minimum wage. Such a measure was so far from the policy mainstream that few economists bothered considering it. Now, several cities and states have required $15-per-hour starting wages, prompting the need to consider the policy’s effects on jobs and the economy at large.
This Issue Brief fills the gap by estimating state-by-state job losses in each state under a $15-per-hour minimum wage. The policy would result in many states losing hundreds of thousands of jobs and would considerably curtail employment opportunities, especially for less-skilled workers. These findings show that the federal government should not impose a $15 minimum wage on states, and states should expect that adopting this policy would hurt many workers.
Growing Traction for Fringe Idea
Mandatory $15-per-hour starting wages was once a fringe idea. Politicians of every ideological stripe agreed that it would eliminate too many job opportunities. Nonetheless, recent, union-backed campaigns have pushed the idea into the mainstream. The California and New York legislatures recently passed bills raising minimum starting wages in their states to this level. Several cities, including Washington, DC, have also passed $15-per-hour minimum wages.
In Congress, Senator Bernie Sanders (I–VT) has introduced the Pay Workers a Living Wage Act, which would raise the federal minimum wage from $7.25 per hour to $15.00 per hour over four years. Prominent Senators, including Assistant Minority Leader Dick Durbin (D–IL), have co-sponsored this bill. The Democratic Party has formally included a $15-per-hour minimum starting wage in its 2016 campaign platform. If the policy became law in 2017, the federal minimum wage would rise to $15 by 2021.
Since the $15-per-hour minimum wage was a fringe proposal, it received relatively little empirical examination. Economists widely agreed $15 was too high and instead examined smaller increases that actually had political support. This Issue Brief fills that gap, examining how a $15-per-hour minimum wage by 2021 would affect each state.
Consequences of $15-per-Hour Starting Wages
Companies hire workers when the additional earnings their labor creates exceeds the cost of employing them. Starting wages of $15.00 per hour mean full-time employees must create at least $38,700 a year in value for their employers (including wages, employer payroll taxes, and Obamacare-mandate penalties). Such a high hurdle would make it much harder for less-experienced and less-skilled workers to find full-time jobs. Many of these workers are not yet productive enough to create that much value for their employers and businesses will not hire them at a loss.
Consequently, many businesses might respond to a $15 mandate by eliminating positions, cutting hours, and looking for new ways to implement labor-saving technology. Some companies might have to face shutting down or leaving America entirely to cope with the additional expenses.
This process has already begun in California. Shortly after Los Angeles raised its city minimum wage to $15 per hour, American Apparel eliminated 500 clothing manufacturing jobs in the city. The Los Angeles Times reports the company planned to relocate those jobs within California. After California raised minimum starting wages statewide, however, American Apparel began examining options to move production outside California.
Quantifying Job Losses
Fifteen-dollar-per-hour mandatory starting wages would cover roughly one-third of U.S. wage and salary workers—considerably more than the minimum wage has ever covered. Existing minimum-wage studies shed little light on the number of jobs a $15 mandate would cost, as they examined much smaller minimum-wage increases that affected relatively few workers. In fact, most of the studies look only at sectors significantly impacted by past increases, like teenage employment or the restaurant sector. These studies provide little guidance on the effects of a minimum wage covering one-third of the workforce.
However, economists have extensively studied how businesses respond to higher wages overall, not just minimum-wage increases. On average these studies find a 10 percent increase in labor costs causes firms to reduce employment of less-skilled workers by 6.8 percent in the long run. This is not a precise estimate—some studies find greater job losses, others find lower. This figure does indicate, however, the approximate magnitude of job losses that occur when labor costs rise.
Table 1 uses this employment response to estimate the impact of a $15-per-hour state minimum wage in each state. The table shows the total proportion of employees directly affected by minimum starting wages of $15 per hour in 2021 in each state. It also shows the total number of full-time-equivalent (FTE) jobs such a mandate would cost each state, relative to the employment that would have occurred if each state left its minimum wage at 2015 levels.
Nationwide, such state minimum-wage hikes would result in the loss of approximately 9 million jobs. The table shows that New York’s $15-per-hour starting wage requirement, if it takes full effect, will cost the Empire State over 400,000 FTE jobs. In Illinois, $15-per-hour starting wages would eliminate more than 300,000 jobs. Arizona and Indiana would both lose approximately 200,000 jobs.
States with lower living costs would experience relatively greater job losses. For example, New Jersey and Georgia have similar total employment. However, Georgia would lose almost twice as many jobs to a $15 mandate (329,000) as New Jersey (170,000). This happens because a $15 mandate affects substantially more employees in Georgia (39.5 percent) than in New Jersey (26.1 percent).
- Table 2 shows how a federal mandate of $15-per-hour starting wages would affect each state. These estimates are smaller than in Table 1 for two reasons:
- Table 2 shows the effect of a $15 federal minimum wage above and beyond currently legislated state minimum-wage increase. For example, it accounts for the fact that California will have a $14-per-hour minimum wage in 2021 and New York State will have a statewide $15-per-hour rate and thus be unaffected by a federal mandate.
The federal minimum wage exempts many workers in the agricultural sector; state laws generally do not.
Table 2 shows Texas the biggest loser—by far—from federally mandated $15-per-hour starting wages. At that rate, the federal minimum wage would cover almost two-fifths of wage and salary employees in the Lone Star State. This would cost over 900,000 FTE Texan jobs.
The next biggest loser is Florida. A $15-per-hour federal mandate would also cover 40 percent of Floridian employees, costing Florida roughly 600,000 FTE jobs.
North Carolina, Ohio, and Pennsylvania would all lose approximately 300,000 FTE jobs. Louisiana, Michigan, Missouri, Tennessee, and Virginia would each lose about 200,000 FTE jobs.
All told, $15 federal starting wages would cost 7 million jobs nationwide, above and beyond those jobs that state minimum-wage increases (such as New York’s) will eliminate.
Economists have extensively studied how changes in wages affect employers’ demand for labor. This research provides the best guidance on the effect of large minimum-wage increases. These estimates imply that currently legislated minimum-wage increases in states like California, New York, and Oregon will cost approximately 2 million jobs by 2021. A federally mandated $15-per-hour starting wage would cost an additional 7 million jobs.
These estimates provide important information about the impact of large minimum-wage increases on job opportunities and poverty. Efforts to create jobs and reduce poverty should not center on forcing employers to pay higher starting wages.
—James Sherk is Research Fellow in Labor Economics in the Center for Data Analysis, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation.
Republished from Heritage.org. CLICK HERE to read the original.
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