Alabama’s minimum wage misfire
Author: Michael Saltsman
Publication Date: February 2016
Newspaper: Birmingham News
Topics: Minimum Wage
Birmingham’s City Council shocked the Deep South last year when it approved legislation to increase the city’s minimum wage by nearly 40 percent from $7.25 to $10.10. (The decision was allegedly made to divert attention from a 233% pay raise the Council gave itself.)
Now, while Alabama Republicans are considering whether to prevent cities from creating their own wage floors, Democrats are hoping to enact a higher wage statewide. But the evidence suggests that a minimum wage increase–either at the state or local level–will deliver disappointing results for the people of Alabama.
The non-partisan Congressional Budget Office’s 2014 report estimated that a $10.10 minimum wage implemented nationwide would cause half a million Americans to lose their jobs. Economists at Trinity and Miami Universities replicated the CBO’s methodology to estimate Alabama’s share of the job loss. Their study finds that $10.10 legislation, if implemented in Alabama, would lead to roughly 9,400 lost jobs when fully implemented. Alabama’s women would bear the brunt of the suffering, accounting for two thirds of the job losses.
Perhaps most concerning for Alabama is that the $10.10 wage isn’t a targeted means to deliver benefits to those it’s meant to help. Just 13.3 percent of affected employees in Alabama are single parents; by contrast, roughly 58 percent are second- or third-earners that are living with family or relatives. Their average family income is $47,300—meaning the new wage isn’t well-targeted to families in poverty.
Proponents have portrayed the $10.10 proposal as modest. Particularly in Alabama, this doesn’t appear to be the case: Arin Dube of the University of Massachusetts-Amherst, one of the foremost left-of-center economists backing a wage hike, endorsed a minimum wage in Alabama closer to $8.50 after adjusting for regional incomes and the cost of living. But this debate over the modesty of the mandate also misses the point. Even smaller increases to the minimum wage have been harmful, as economists at the University of California-Irvine and the Federal Reserve Board confirmed in a review of decades of research on the subject.
Stephanie Yates, director of the University of Alabama-Birmingham Institute for Financial Literacy and a seeming proponent of the higher wage, framed Birmingham’s choice (and Alabama’s) this way: “Any time you have this kind of sweeping change in the minimum wage, you have the potential for some workers to see increased real income, and some workers to lose their jobs.” In other words, while some employees gain when the minimum wage rises, it is at the expense of others–employees who tend to be less-skilled, less-educated, and most in need for that first chance at a job.
Instead of trying to raise the minimum wage in a futile attempt to reduce poverty, the state should advocate for a more effective alternative to wage hikes such as the creation of a state supplement to the Earned Income Tax Credit. It boosts the incomes of low-income employees through the tax code without hurting employees’ chances to get hired.
Alabama Democrats are right to fight for a policy that reduces poverty, but they should be advocating for a course of action that is economically feasible, not just politically popular.