Four US states vote to raise minimum wages -- what will the effect be?

[Puppycow]

It seems we have a sort of natural economic experiment in progress due to the election results in four US states that voted to raise the minimum wage (not taking immediate effect though). It will, however take at least a year, and probably more to really see if there is any effect on unemployment and jobs. I hope to revisit this thread in the future and see if we can learn anything useful.

Four States and Two Cities Hike Their Minimum Wage Rates

Alaska: More than two-thirds of voters in Alaska agreed to raise the minimum wage to $9.75 by 2016. The measure increases the state’s current minimum wage from $7.75 per hour to $8.75 beginning January 1, 2015. This is followed by a second increase to $9.75 on January 1, 2016. From that point on, the minimum wage will be adjusted based on inflation or remain $1 higher than the federal minimum wage, whichever amount is greater.

Arkansas: Arkansas voters overwhelmingly approved a measure to increase the state’s minimum wage incrementally to $8.50 per hour by January 1, 2017. On January 1, 2015, the hourly wage will increase from $6.25 to $7.50, then to $8.00 on January 1, 2016. Of note, Arkansas is one of three states whose minimum wage is currently lower than the federal minimum wage of $7.25 (though when a state’s minimum wage is less than the federal minimum wage, the federal rate applies).

Nebraska: Nebraska voted to increase its minimum wage in two increments: from $7.25 to $8.00 on January 1, 2015; and from $8.00 to $9.00 on January 1, 2016. When the first increase takes effect it will be the first time the state’s minimum wage has been higher than the federal minimum wage.

South Dakota: South Dakota passed Initiated Measure 18, increasing the minimum wage from $7.25 per hour to $8.50 per hour beginning January 1, 2015. The new law also guarantees an increase in the minimum wage each year thereafter to account for inflation. Additionally, the measure set the tipped employee minimum wage at half that of the minimum wage, raising the tipped employee minimum wage from $2.13 to $4.25 an hour.

Illinois: Voters approved a nonbinding advisory question that calls on the state Legislature to approve a $10 minimum wage effective January 1, 2015. The state’s minimum wage is currently $8.25 per hour.

In addition, a number of cities also had wage-hike referendums.

Oakland, California: Voters approved a measure to increase the citywide minimum wage to $12.25 beginning on March 2, 2015. The minimum wage rate will thereafter increase yearly on January 1st based on cost of living adjustments.

San Francisco: The City, which currently has a minimum wage of $10.74, passed an incremental minimum wage increase that will reach $15 an hour on July 1, 2018. Under the new law, the minimum wage will rise to $11.05 on January 1, 2015. On July 1, 2016, the minimum wage will increase to $13 per hour; then $14 on July 1, 2017. Beginning on July 1, 2019, the minimum wage will increase annually based on the Consumer Price Index.

Just for a baseline, the latest reported national unemployment rate at this time is 5.8%. For the states in question:
SOUTH DAKOTA 3.4
NEBRASKA 3.6
ARKANSAS 6.2
ILLINOIS 6.6
ALASKA 6.8

The unemployment rates in South Dakota and Nebraska are already quite low. Hard to get much better than that. The question is, will they get worse? The Illinois thing was non-binding, but if the legislature and governor follow through on it, it could also be a data point, so I'll include them for the time being.

There's also data for Oakland and San Fransisco, although they are taken as one area in the statistics:
San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area 5.0

 

[MoeFaux]

Los Angeles just voted to raise the minimum wage to $15 by 2020. It is currently at $9/hour. That better mean my salary goes up another $6/ hour too...

 

[Francesca R]

Los Angeles just voted to raise the minimum wage to $15 by 2020. It is currently at $9/hour. That better mean my salary goes up another $6/ hour too...

You seem to be advancing an objective argument not to do it.

 

[Puppycow]

Oh, wow, I might have forgot about this thread when no one responded to it at first. Thanks for the bump.

Well, let's see if there have been any changes yet.

Just for a baseline, the latest reported national unemployment rate at this time is 5.8%. For the states in question:
SOUTH DAKOTA 3.4
NEBRASKA 3.6
ARKANSAS 6.2
ILLINOIS 6.6
ALASKA 6.8

The unemployment rates in South Dakota and Nebraska are already quite low. Hard to get much better than that. The question is, will they get worse? The Illinois thing was non-binding, but if the legislature and governor follow through on it, it could also be a data point, so I'll include them for the time being.

There's also data for Oakland and San Fransisco, although they are taken as one area in the statistics:
San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area 5.0

Since the OP:
NATIONAL: 5.8 to 5.4 (-0.4%)
SOUTH DAKOTA 3.4 to 3.5 (+0.1%)
NEBRASKA 3.6 to 2.6 (-1.0%!)
ARKANSAS 6.2 to 5.6 (-0.6%)
ILLINOIS 6.6 to 6.0 (-0.6%)
ALASKA 6.8 to 6.5 (-0.3%)
San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area 5.0 to 4.2 (-0.8%)

That's an average of a 0.5% improvement in the unemployment rate so far for states that voted to raise the minimum wage vs. a 0.4% improvement in the national unemployment rate.

In particular, Nebraska had the best improvement and now also has the lowest unemployment rate in the country. Their minimum wage hike went into effect Jan. 1st.

Update for Illinois:

Thu Feb 5, 2015 6:32pm EST

Illinois Senate passes minimum wage hike plan

Nothing finalized though as far as I can see. Hasn't been signed by the Governor.

 

[Gawdzilla Sama]

You seem to be advancing an objective argument not to do it.

The minimum drinking age is going from 21 to 25, so my age better go up four years too!

 

[Francesca R]

You should campaign for a mandatory four year period of abstinence for every drinker already 25 or older.

 

[Belz...]

Four US states vote to raise minimum wages -- what will the effect be?

Disaster and mass unemployment, obviously.

 

[Aepervius]

I think the result will be a slightly better life for some people, a slightly increased inflation, but not much difference as I bet loophole exists.

 

[Macgyver1968]

I wish Texas or the Feds would get up off their ass and raise the rate.

 

[Gawdzilla Sama]

You should campaign for a mandatory four year period of abstinence for every drinker already 25 or older.

And take their guns!!!!

 

[Puppycow]

Time for an update to this thread. To refresh memories including my own, here was the OP:

It seems we have a sort of natural economic experiment in progress due to the election results in four US states that voted to raise the minimum wage (not taking immediate effect though). It will, however take at least a year, and probably more to really see if there is any effect on unemployment and jobs. I hope to revisit this thread in the future and see if we can learn anything useful.

Four States and Two Cities Hike Their Minimum Wage Rates

Alaska: More than two-thirds of voters in Alaska agreed to raise the minimum wage to $9.75 by 2016. The measure increases the state’s current minimum wage from $7.75 per hour to $8.75 beginning January 1, 2015. This is followed by a second increase to $9.75 on January 1, 2016. From that point on, the minimum wage will be adjusted based on inflation or remain $1 higher than the federal minimum wage, whichever amount is greater.

Arkansas: Arkansas voters overwhelmingly approved a measure to increase the state’s minimum wage incrementally to $8.50 per hour by January 1, 2017. On January 1, 2015, the hourly wage will increase from $6.25 to $7.50, then to $8.00 on January 1, 2016. Of note, Arkansas is one of three states whose minimum wage is currently lower than the federal minimum wage of $7.25 (though when a state’s minimum wage is less than the federal minimum wage, the federal rate applies).

Nebraska: Nebraska voted to increase its minimum wage in two increments: from $7.25 to $8.00 on January 1, 2015; and from $8.00 to $9.00 on January 1, 2016. When the first increase takes effect it will be the first time the state’s minimum wage has been higher than the federal minimum wage.

South Dakota: South Dakota passed Initiated Measure 18, increasing the minimum wage from $7.25 per hour to $8.50 per hour beginning January 1, 2015. The new law also guarantees an increase in the minimum wage each year thereafter to account for inflation. Additionally, the measure set the tipped employee minimum wage at half that of the minimum wage, raising the tipped employee minimum wage from $2.13 to $4.25 an hour.

Illinois: Voters approved a nonbinding advisory question that calls on the state Legislature to approve a $10 minimum wage effective January 1, 2015. The state’s minimum wage is currently $8.25 per hour.

In addition, a number of cities also had wage-hike referendums.

Oakland, California: Voters approved a measure to increase the citywide minimum wage to $12.25 beginning on March 2, 2015. The minimum wage rate will thereafter increase yearly on January 1st based on cost of living adjustments.

San Francisco: The City, which currently has a minimum wage of $10.74, passed an incremental minimum wage increase that will reach $15 an hour on July 1, 2018. Under the new law, the minimum wage will rise to $11.05 on January 1, 2015. On July 1, 2016, the minimum wage will increase to $13 per hour; then $14 on July 1, 2017. Beginning on July 1, 2019, the minimum wage will increase annually based on the Consumer Price Index.

Now most of these incremental increases have taken effect.
Since the OP:
NATIONAL: 5.8 to 5.0 (-0.8%)
SOUTH DAKOTA 3.4 to 2.7 (-0.7%)
NEBRASKA 3.6 to 3.0 (-0.6%!)
ARKANSAS 6.2 to 4.2 (-2.0%)
ILLINOIS 6.6 to 6.4 (-0.2%)
ALASKA 6.8 to 6.6 (-0.2%)
San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area 5.0 to 3.9 (-1.1%)

That averages out to -0.8% the same as the national average. So at least so far it is hard to see a discernible effect on the unemployment rate. Still, we are talking about relatively modest increases in the minimum wage, not $15/hour.

Recently California voted to raise the state's minimum wage from the current $10/hour to $15/hour by 2022. Previously, in 2013, they had passed a bill that raised it to $9 in 2014 and $10 this year. So it will be interesting to also track California. Their current unemployment rate is 5.5%, and it had been 7.3% when I started this thread, so it has actually improved by 1.8%, better than the national average.

CALIFORNIA 7.3 to 5.5 (-1.8%)

Anyway, here is a Bloomberg editorial about the minimum wage:

http://www.bloombergview.com/articles/2016-04-01/the-downside-of-the-minimum-wage-fad

 

[Brainster]

Time for an update to this thread. To refresh memories including my own, here was the OP:


Now most of these incremental increases have taken effect.
Since the OP:
NATIONAL: 5.8 to 5.0 (-0.8%)
SOUTH DAKOTA 3.4 to 2.7 (-0.7%)
NEBRASKA 3.6 to 3.0 (-0.6%!)
ARKANSAS 6.2 to 4.2 (-2.0%)
ILLINOIS 6.6 to 6.4 (-0.2%)
ALASKA 6.8 to 6.6 (-0.2%)
San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area 5.0 to 3.9 (-1.1%)

That averages out to -0.8% the same as the national average. So at least so far it is hard to see a discernible effect on the unemployment rate. Still, we are talking about relatively modest increases in the minimum wage, not $15/hour.

Recently California voted to raise the state's minimum wage from the current $10/hour to $15/hour by 2022. Previously, in 2013, they had passed a bill that raised it to $9 in 2014 and $10 this year. So it will be interesting to also track California. Their current unemployment rate is 5.5%, and it had been 7.3% when I started this thread, so it has actually improved by 1.8%, better than the national average.

CALIFORNIA 7.3 to 5.5 (-1.8%)

Anyway, here is a Bloomberg editorial about the minimum wage:

http://www.bloombergview.com/articles/2016-04-01/the-downside-of-the-minimum-wage-fad

Sheesh, I hope you didn't take statistics in college. First, let's note that Arkansas, your big winner in terms of declines in unemployment rate was only minimally affected by the minimum wage increase in that state, as their minimum was below the federal minimum when the law passed, and only 25 cents an hour above it until January of this year. Second, averaging unemployment rates without weighting for the size of the states in question is an obvious statistical error. Illinois has 12.8 million people, around twice as many people as South Dakota, Nebraska, Arkansas, and Alaska combined. Third, there are the statistical problems with the unemployment rate; a much better metric would be job growth (in percentage terms).

 

[Puppycow]

Sheesh, I hope you didn't take statistics in college. First, let's note that Arkansas, your big winner in terms of declines in unemployment rate was only minimally affected by the minimum wage increase in that state, as their minimum was below the federal minimum when the law passed, and only 25 cents an hour above it until January of this year. Second, averaging unemployment rates without weighting for the size of the states in question is an obvious statistical error. Illinois has 12.8 million people, around twice as many people as South Dakota, Nebraska, Arkansas, and Alaska combined. Third, there are the statistical problems with the unemployment rate; a much better metric would be job growth (in percentage terms).

Well I'm just doing a very rough back-of-the-envelope calculation here, not trying to make a rigorous study, but I would be interested if anyone has.

Assuming that California actually follows through on its plans though, it should be an interesting natural experiment. So far the hikes to the minimum wage have been relatively modest. Supposedly about 15 million workers earn less than $10/hour whereas 151 million people have jobs, about 10%. So raises to around $10 do not affect so many people. However, 42% of workers make less than $15/hour so that is a significant chunk of the workforce. If economic theory holds true, we should probably see some kind of effect when the higher wages over $10 start to kick in.

I don't know exactly what schedule the California wage hikes will follow, but that's $5 over 6 years. However, there is a provision that allows the governor to suspend the wage hikes due to "tough economic times", so if unemployment starts to rise sharply, I would expect the governor to use that provision. So it seems possible, maybe even likely that they won't actually follow through with it all the way.

 

[Brainster]

Well I'm just doing a very rough back-of-the-envelope calculation here, not trying to make a rigorous study, but I would be interested if anyone has.

Assuming that California actually follows through on its plans though, it should be an interesting natural experiment. So far the hikes to the minimum wage have been relatively modest. Supposedly about 15 million workers earn less than $10/hour whereas 151 million people have jobs, about 10%. So raises to around $10 do not affect so many people. However, 42% of workers make less than $15/hour so that is a significant chunk of the workforce. If economic theory holds true, we should probably see some kind of effect when the higher wages over $10 start to kick in.

I don't know exactly what schedule the California wage hikes will follow, but that's $5 over 6 years. However, there is a provision that allows the governor to suspend the wage hikes due to "tough economic times", so if unemployment starts to rise sharply, I would expect the governor to use that provision. So it seems possible, maybe even likely that they won't actually follow through with it all the way.

Here's the schedule:

Under California’s plan, its minimum wage, currently one of the highest in the nation at $10 an hour, would rise to $10.50 in 2017, $11 in 2018 and a dollar each year through 2022.

Businesses with 26 or more employees will follow that schedule; smaller businesses will be allowed to lag a year behind.

This will almost certainly increase the pace of automation in the fast food industry, and indeed, any business which is labor-intensive.

There will also be a ripple effect throughout the state; for example, teachers are required by contract to make 2x the minimum wage. Note the comment by MoeFaux above; a lot of employees making just above the $15 an hour will surely be agitating for their own raise.

 

[mikado]

funny how the rest of the developed world has a decent minimum wage and the sky hasn't fallen in.....

 

[psionl0]

This will almost certainly increase the pace of automation in the fast food industry, and indeed, any business which is labor-intensive.

It is one thing to question the validity of the data presented but you can't state that the conclusion will be the exact opposite to the one the data invites without proof.

 

[theprestige]

funny how the rest of the developed world has a decent minimum wage and the sky hasn't fallen in.....

The sky hasn't fallen in for the US, either.

 

[BobTheCoward]

funny how the rest of the developed world has a decent minimum wage and the sky hasn't fallen in.....

Europe generally has higher unemployment rates (and higher rates in populations we often associate these laws with trying to help). I have seen a number of things to suggest that their regulation on labor may contribute to that.

 

[Puppycow]

This will almost certainly increase the pace of automation in the fast food industry, and indeed, any business which is labor-intensive.

On this point, I've said elsewhere that in the long term I hope that robots take all of our jobs, at least the menial ones. If raising the minimum wage really can make that day arrive sooner, great!

Not that I wish anyone to be unemployed against their will mind you, I just think a true techno-utopia of the distant future would free us from most mundane labor, if that's technically possible. And also from the necessity to have a regular "job" in the traditional sense of the word.

Will minimum wage hikes lead to a huge boost in automation? Only if we're lucky.

As states like California and cities like Seattle boost their minimum wages up to $15 an hour, critics warn that job losses will be inevitable. In particular, one major line of criticism from outlets like the Wall Street Journal editorial page and Forbes's Tim Worstall is that big increases in pay floors only lead to job loss via automation. Both critics point to initiatives at McDonald's and Wendy's to automate more of the service process, and warn that robots, rather than workers, will be the real winners if liberals succeed in boosting minimum pay.

This is doubly wrong. On the one hand, there's little guarantee that increased minimum wages really will increase the pace at which labor-saving technology is developed. On the other hand, there's no reason to think this would be a bad scenario.

If minimum wage hikes really do spur the creation and adoption of high-quality new equipment to automate elements of, say, the food service industry, then that would be a very positive outcome that implies minimum wage hikes are a great idea. Productivity-enhancing technology, after all, is a crucial pillar of social and economic progress. The problem in recent years is that we haven't had nearly enough of it.

California's minimum wage hike pushes the issue beyond the terrain in which it's been studied. Given that, a huge increase in automation is really the optimistic outcome. The thing to worry about is that the robots won't happen, not that they will.

 

[Arg9]

Europe generally has higher unemployment rates (and higher rates in populations we often associate these laws with trying to help). I have seen a number of things to suggest that their regulation on labor may contribute to that.

Raising the minimum wages will lead to it. To me it makes complete sense. If I own a business and I can buy a machine that is now cheaper than wage increased employee, I'm going to do what I can so survive as a business. What bothers me is this also hurts the smaller unique business that are already struggling to stay in business. If it was left alone, they may still have a chance to grow. Also, by setting a minimum wage—the poor individual down on luck who would be happy with any job is hosed.