Minimum Wage Increase Update
Over the past decade, labor groups have held out $15 as a minimum wage target that would let low-paid workers sustain themselves.
Many state and local minimum wages will increase this year. This article provides an update on those increases, along with related changes in tipped wages. Businesses operating in cities with higher minimum wage rates will need to order new City Labor Law Posters.
Cost of Living Adjustments
A minimum wage increase is intended to bring a worker’s wages up to the level necessary to maintain purchasing power. However, a worker’s salary may also be increased for promotions, pay differentials based on atypical work schedules, hazardous or un-secure workplaces, special skills or responsibilities and other factors not related to the need to maintain purchasing power.
Some opponents of raising the minimum wage argue that it will cause firms to pass the cost to consumers via price increases and that this will result in job losses. The CBO report finds that the effect of a change in the minimum wage on employment is influenced by the number of workers affected, the size of the mandated increases for directly affected workers and whether those increases are indexed to inflation or wage growth.
Many small businesses struggle to balance their desire to treat employees fairly with the need to control costs. In response to rising labor costs, some companies reduce non-cash benefits like retirement plans or health insurance, cut hiring or raise prices for customers.
Increasing the minimum wage significantly raises the earnings and family income of low-wage workers, lifting some families out of poverty. However, it also causes some low-wage workers to lose their jobs. Using official employment projections, Meer and West estimate that three years after the new laws are fully implemented, total job earnings will be 0.9 to 4.7 percent lower in states and Washington, DC.
For the seven states implementing $15 minimum wages, and New York state (New York City will reach 15 in 2022 and the rest of the state in 2023), this means a projected 2.6 million jobs lost.
Employers with employees in multiple states must keep up with the minimum wage changes and adjust payroll accordingly. To help employers with this task, Paycor has created a helpful table displaying the current minimum wage by state and the schedule for annual increases to 15 dollars per hour.
One of the most common criticisms of minimum wage increases is that they will cost jobs. But this view is incomplete. Workers get more than just wage pay: they also earn benefits like insurance, free food, and parking. If those costs go up, firms will need to cut other forms of compensation or reduce production to cover the increased costs.
If firms do that, employment will decline, but it’s unlikely to be severe. There’s about a two-thirds chance that employment would decrease by just less than 0.1%, according to CBO.
That’s a small price to pay for significantly improving the long-run lot of low-income families. And that’s especially true in states that combine the higher wages with policies that keep workers from losing valuable public assistance programs. In those cases, the increased incomes will allow many families to stop relying on those programs and save taxpayer dollars. That’s the goal of policies like the earned-income tax credit and a progressive tax system, which will help maximize the impact of the minimum wage increase.
A broader conversation about wages and poverty should address other social determinants of health, including affordable access to healthy food, safe housing, childcare, universal healthcare and paid sick and vacation leave. These policies could improve living standards for families struggling to make ends meet, narrow racial and gender disparities in income, and increase economic security.
The effect of a minimum wage increase on employment depends on the responsiveness of labor demand to changes in its price. Standard economic theory says that as the cost of labor increases, firms will reduce the number of jobs they offer or their hours.
But the evidence on this question is mixed. Workers who remain in their jobs may spend more, boosting local economies. And research shows that the higher wages will improve the quality of their lives. Also, the way companies respond to a change in the minimum wage depends on their business model. For example, a small firm run by a single owner might try to squeeze more work out of existing employees, instead of hiring new staff.