We’ve talked a bit about minimum wage increases here before. In particular, I’m interested in the effects these minimum wage increases end up having. Most reports you read, whether positive or negative, are pretty much pure speculation, or cherry picking of data to fit an agenda. The reality is that the whole, higher minimum wage movement is still too young to produce the kinds of data needed to draw actual, mathematically and economically sound conclusions.
Where Is Minimum Wage Higher in 2016?
Part of the problem with knowing how higher minimum wage affects things is that it is nearly impossible to isolate individual geographic regions from the power of the national economy. This is particularly true for cities that are raising their minimum wage. Since employment in the U.S. is picking up after having been slammed by the Great Recession, most areas, regardless of minimum wage laws, are seeing higher employment.
Still, the only way to find data is to look for it. First, the federal minimum wage is $7.25 per hour.
No Minimum Wage Increase for 2016
There are seven states that either have no minimum wage laws, or a state minimum wage law below the federal minimum (Georgia, Wyoming). They are exactly where you think they would be, in the southeast corner of the United States, plus Wyoming.
- South Carolina
Then there are the 14 states with a state minimum wage equal to the federal minimum wage.
- North Dakota
- West Virginia
- North Carolina
- New Hampshire
So, if we are going to look at this scientifically, these 21 states are our control group, the states without a higher minimum wage.
Cost of Living Minimum Wage Increases
Then, there are 11 states with laws that automatically increase the state minimum wage by indexing it to inflation. These increases are smaller, incremental increases. These states are particularly interesting because over time, their wages will, presumably, drastically out pace those of the lowest states, but will do so gradually, which eliminates the shock of a sudden rise.
Four states have laws that will index minimum wage amounts to inflation, but they don’t take affect for 2016.
- Alaska (manually to $9.75 in 2016, indexing starts 2017)
- Michigan (manual adjustments for 2017 and 2018, then indexing beginning 2019)
- Minnesota (manual adjustment to $9.50 for large employers and $7.75 for small employers in 2016. No adjustment in 2017. Then, indexed starting 2018)
- Vermont (manual increase to $10 in 2017, then $10.50 in 2018, then indexed or 5% starting 2019)
Two states that do index to inflation had actual increases:
- Colorado (8 cent increase to $8.31)
- South Dakota (5 cent increase to $8.55)
The remaining 8 states that already index to inflation but had no increase for 2016 due to their formulas or other provisions.
- New Jersey
New Minimum Wage Laws
Several other states raised their minimum wage hourly rate manually to take effect in 2016.
- Arkansas – from $7.50 to $8.00
- California – from $9 to $10.00
- Connecticut – from $9.15 to $9.60
- Hawaii – from $7.75 to $8.50
- Maryland – from $8 to $8.75
- Massachusetts – from $9 to $10.00
- Michigan – from $8.15 to $8.50
- Nebraska – from $8 to $9
- New York – from $8.75 to $9
- Rhode Island – from $9 to $9.60
- West Virginia – from $8 to $8.75
Minimum Wage Law Effects
The interesting part here is that there are numerous states that are geographically close together with wide wage gaps between them. The trick will be seeing what, if any differences can be attributed to the differing minimum wages.
The argument is that higher minimum wages either help reduce poverty and increase the overall well being of those who earn minimum wage, or it drives inflation and causes businesses to reduce employment, which actually hurts those same people.
Ideally, the “proof” about minimum wage laws, one way or the other, would require both effects. That is, if we do not see lower employment and inflation coupled with reduced poverty, then we can conclude that higher minimum wages work. Conversely, if there is increased unemployment and inflation and no reduction in poverty, then we can conclude that higher minimum wages hurt more than they help.
But, what if the results are mixed? What if there is no job loss or inflation but also no reduction in poverty? What if there is higher inflation but also a reduction in poverty.
It will take a few years to get enough data to make real conclusions, and that will only be made trickier by the continuous changes in state laws, but no matter what, we will get some interesting data.