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Wednesday, January 4, 2017

The Federal Minimum Wage is on the Chopping Block

Back in 2013, the Obama White House put out a fact sheet detailing the impact of raising the minimum wage to $9. Eventually the President realized the GOP didn't want to play ball so he did the only thing he could do and raised it for Federal contractors  (to $10.20/hour).

At the time there was some contention about minimum wages lowering employment and at the same time not affecting any significant number of workers.

But as the linked fact sheet shows, most research has found no significant negative impact of minimum wage hikes on employment thanks to the monopsonization of our workforce.  Furthermore, raising the minimum wage from $7.25 to $9 for 5 million people has a direct impact on the wages of 10 million other people as well (those between $7.25 and $9). There may also be an indirect spillover as minimum wage workers increase consumption and therefore wages in other sectors also rise but that typically takes a bit of time to unfold. This is what the White House referred to as the "ripple effect."

Jump ahead 4 years to today and the opposite proposal is coming from our incoming government. They want to axe the minimum wage entirely. They cite statistics from the BLS showing that the number of minimum wage workers has fallen below 3 million people and they claim the states can deal with that <1% of the population. What they ignore are the 20.6 million people who are near-minimum wage. While under 3 million people are earning $7.25 or less, 10 million people earn between $7.25 and $9, and another 8 million people earn between $9 and $10.10 per hour.

So who would be affected by the reverse?: While 29 States plus DC have minimum wages above the Federal minimum and therefore wouldn't be affected by this, 21 states are at or even below the Federal minimum. So those 3 million or so workers are mostly clustered in those 21 states.  And just as others would find their wages rising when the minimum wage increases, so would we see the wages of others falling when the minimum wage decreases. As a result, at least 10 million people would immediately be looking at a smaller paycheck once the repeal is enacted. Who would be worst off?

Idaho, Iowa, Kentucky, New Hampshire, North Carolina, North Dakota, Pennsylvania, and Wisconsin all have State Minimum Wages at the Federal level of $7.25. So workers in those eight States will not be directly impacted.

And Indiana and Kansas use the Federal Minimum but have a sub-minimum wage of $4.25 for teenagers. That brings us up to 10 of the 21 that will not be directly impacted.

Major impacts on wages will be felt on the following States:
Georgia and Wyoming have a State Minimum Wage of $5.15. And Alabama, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, Texas, Utah, and Virginia all use the Federal Minimum Wage but do not have a State Minimum Wage -- which means they basically view $7.25 as a ceiling and not a floor.

And using BLS statistics,  what we can see is that 20% of the workers in those 11 states will see their wage fall. The only one of those 11 states that has a Democratic governor who wields enough power to prevent a collapse of the wage structure is Virginia. Workers in the other 10 are in big trouble.