In recent years, the movement to enact “living wages” or increases in the minimum wage has been active in states and cities across the country. Advocates of these wage hikes argue that the increases will help low-income families escape poverty. Although emotionally compelling, this argument ignores the unintended consequences the proposed increase would create. Worse, the mandated increase confers its benefits overwhelmingly on employees who aren’t poor whereas those who are bear a disproportionate share of the costs.
This paper by economist Dr. David Macpherson from Florida State University analyzes one such proposal—legislation to increase the minimum wage in Ohio. Using Current Population Survey data and labor demand estimates (as reported by a consensus of economists), Dr. Macpherson’s research shows that the proposed increase will be an expensive mandate on the employers of Ohio.
The study concludes that the mandate increase would result in a loss of almost 12,000 jobs and impose a $308 million hit on the Ohio economy. Most of the economic cost—$202.6 million—stems from increased labor costs for employers. A significant portion, however—$105.9 million—is the result of lost income for the almost 12,000 employees who will lose their jobs. More than half of the job losses fall on those under 25 and nearly one-third on those earning less than $25,000, adding cruel irony to the consequences.
As this study shows, minimum wage increases are a blunt and ineffective means to assist low-income employees. Many low-income persons are unaffected because they do not work or they work few hours. This report found that families with incomes below $15,000 would experience only a $63 increase in annual income. It’s the amount they work, not the wage they work at, that is the critical determiner of their economic situation.
Wage increases also fail to meet their stated goals for the simple reason that most minimum wage earners aren’t poor. Less than 10% of earners are the sole earner for a family with kids. Almost two-thirds—62.7%—are under 24 and 48.3% still live with their parents. Almost three-quarters, 73%, are part-time employees. This study found that the average family income of affected employees in Ohio is just over $52,000 and that almost 80% of the benefits of the wage hike go to families that aren’t poor.
This paper’s calculation of the enormous economic cost of a mandated wage increase ought to caution policymakers. When this is added to the research that the proposed wage increase would confer most of its benefits on families that aren’t poor and impose a disproportionate share of its costs on those that are, policymakers would be wise to explore alternative measures to assist low-income families.
