Based upon an analysis of Labor Department data, Dr. David Macpherson finds that a proposal to hike the Washington minimum wage from $5.15 to $6.50 by the year 2000 would cause more than 7,431 workers to lose job opportunities. As a consequence, Washington workers would lose approximately $64 million in annual income. At the same time, minimum wage employers would see their labor costs rise by $204 million per year in order to provide minimum wage workers an increase in average family income of only 2.8%.
On February 12, 1998, President Clinton proposed raising the federal minimum wage in two annual 50-cent increments, from $5.15 to $5.65 and then to $6.15 per hour. In support of this proposal, the President and others claim that minimum wage increases of such magnitudes do not cost jobs, and that the benefits of these increases accrue primarily to poor adults trying to raise families. With this legislative proposal on the table, it is instructive to read Dr. David Macpherson’s new study of expected total effects from Washington’s proposed two-part statewide increase in its minimum wage from $5.15 to $6.50, the final increase being effective January 1, 2000.
Who will be affected?
Dr. Macpherson finds that fewer than one in seven of the workers who would be affected by the minimum wage increase is the sole breadwinner in a family with children. The annual family income of affected workers averages more than $30,000, and in some localities this average exceeds $45,000. These income figures indicate that most minimum wage workers are members of families with multiple workers. Only one in six affected workers lives in a family with income of less than $10,000.
Of affected workers, many are very young; 29% are teens aged 16-19 and an additional 18.4% are young adults age 20-24; 29.7% are living with a parent or parents. More than half of affected workers have never been married.
How will they be affected?
Approximately 40% of the 7,431 layoffs will hit workers with annual family incomes less than $20,000, while more than half of the job loss will be confined to workers under age 25. Moreover, 52% of the job loss will hit in the retail sector, and another quarter will hit the service sector. Almost half of the job loss and income loss will hit the Seattle-Tacoma area.
Dr. Macpherson estimates that the $204 million in additional labor costs associated with the proposed Washington minimum wage increase will fall disproportionately on retail employers ($101 million) and service-sector employers ($57 million), and especially on employers in the Seattle-Tacoma area ($92 million).
Of the total income gains generated by the wage hike, less than one dollar in five will go to workers living in families with incomes of less than $10,000. Hence, the wage hike appears to be a very inefficient tool for raising low-income workers out of poverty. The average increase in family income of affected workers will be a very modest 2.8%.
Conclusion
This study demonstrates that increases in the minimum wage entail real consequences and costs. A $1.35 (or 26 percent) increase can cause significant job loss and impose substantial costs on employers. At the same time, such an increase does little to combat poverty, even among those that don’t lose their jobs. In Washington, the expected consequences of such an increase in the minimum wage are 7,431 lost jobs, $64 million in lost wages, and $204 million in additional labor costs.
