Twenty states raised their minimum wages at the start of 2018, and Utah Rep. Lynn Hemingway, D-Millcreek, has announced plans for a similar push in the Beehive State. However well-intentioned, Hemingway’s simple solution to force employers to pay more isn’t the right one.
Hemingway has proposed raising Utah’s minimum wage immediately to $10.25 per hour — a 41 percent increase. The wage mandate would rise further to $12 per hour by 2022. According to a methodology developed by the nonpartisan Congressional Budget Office, this policy would cost Utah at least 10,000 jobs, which cuts against Hemingway’s goal to lift up those at the bottom of the pay scale.
The CBO study isn’t an outlier. A paper published by the Federal Reserve Board of San Francisco, summarizing the best research on this topic, confirms that forcing higher wages costs entry-level jobs and hurts less-skilled workers. Recent studies of more dramatic increases in the Bay Area and Seattle show that an irresponsible increase can even force businesses to close — or leave employees with less money than they previously earned.
In fact, 2018 already offers a picture-perfect demonstration of the two options public officials have — one harmful, one helpful — for raising wages. The harmful option is Hemingway’s plan: Force employers to pay more. Thirty-eight states and localities around the country started the new year with minimum wage hikes for reasons identical to Hemingway’s. So how are things working out?
New research by economists from Miami and Trinity Universities shows thatCalifornia will lose over 400,000 jobs because of its high minimum wages, and nearly half of those jobs come from the entry-level food service and retail industries. California Gov. Jerry Brown originally described the $15 minimum wage as a “matter of economic justice.” Who will seek justice for the employees left without a job?
In New York, Gov. Andrew Cuomo isn’t doing much better. The governor still touts his $15 minimum wage as a policy that will “lift up the current generation of low-wage workers and their families.” Yet, New York lost over 500 restaurants in 2016 after enacting a series of unprecedented industry-specific wage hikes. And numerous businesses have closed their doors or left the state as a consequence. (Specific stories can be found at FacesOf15.com.)
Forcing higher wages fails according to mountains of research and the opinions ofnearly three-quarters of economists surveyed by the University of New Hampshire. Fortunately, there’s a second option with an extensive record of success: incentivize higher wages.
Dozens of news stories from the past few weeks have chronicled businesses voluntarily raising their employees’ starting wages as high as $15 an hour, adding benefits or handing out bonuses in response to a recent tax reform package. Americans for Tax Reform collects all of these stories, and its tally shows over 2 million Americans will receive bonuses, higher wages, benefits or all the above in 2018.16 comments on this story
These voluntary actions should not come as a surprise. Two studies have analyzed decades of Census Bureau data and concluded that two-thirds of employees who earn the minimum wage receive a raise within 1-12 months on the job. But there’s a catch: Employees can’t receive a raise without experience, and they can’t get experience if starter jobs have been eliminated as a consequence of wage hikes.
The recent tax overhaul demonstrates how lawmakers can incentivize private entities to boost wages for less-skilled workers and not create legislation that forces businesses to boost wages beyond their means. Utah should not count itself among the governments forcing instead of incentivizing higher wages.
Michael Saltsman is the managing director at the Employment Policies Institute.