After years on the back burner, the minimum wage is hot again. A national campaign to institute a $15 an hour minimum wage has picked up steam in various parts of the country, while here in Texas, legislation has already been filed that would raise the state’s minimum wage to more than $10 an hour.
The thinking behind the minimum wage is fairly simple. We would like workers to make more money, so why not just order their employers to pay them more? But the money to pay those increased wages has to come from somewhere. Particularly in industries with low profit margins, such as food service, a large increase in labor costs can end up killing jobs rather than boosting their pay.
This danger is even greater when you factor in differences in things like cost of living and wage distribution in different parts of the country. For example, imposing a $15 an hour minimum wage will cost employers less in a city like San Francisco (where wages were high even before the increase) than a city like Brownsville (where wages are lower).
In a recent study, economists from Texas Christian University and Marquette looked at exactly this issue, and their findings should give advocates of a large minimum wage increase pause.
While certain industries would be more affected by a minimum wage hike than others, geography proves to be just as important. Consider bartenders. Literally every bartender in El Paso would be subject to a minimum wage increase to $15 an hour, while only a bit more than half in San Francisco would be. Even though the job of bartending is basically identical across the country, the same policy would affect bartenders very differently in different cities. The same pattern also holds for other occupations, such as short-order cooks and waiters and waitresses.
As a result, the same nominal minimum wage would prove far more costly in certain parts of the country, including Texas. Even in high wage cities, the impact of a $15 minimum wage would be significant. But in some areas the money needed to comply is astounding. Nearly one in every four employed persons in San Francisco, for example, would need a raise to comply with that law. By contrast, the same minimum wage increase would affect more than 62 percent of the employed population in Brownsville, Harlingen and McAllen.
The costs are even more pronounced when you look at workers who make much less than the proposed new minimum. In Dallas, employers of workers at the very bottom of the wage distribution would see a nearly 80 percent labor-cost increase imposed, while employers of workers in the 25th percentile would see labor costs rise by 40 percent.
That’s important, because the greater the increase in labor costs, the more likely employers will be to cut jobs. If a business is already paying an employee $14.95 an hour, the extra nickel an hour is probably not going to break the bank. But if keeping a worker means having to nearly double their salary, a business may be forced to look at other options.
The study finds that a such a large minimum wage increase would be a job killer: “We estimate that the New York metropolitan alone would lose approximately 170,000 jobs, while Los Angeles, Chicago and Houston would each lose more than 100,000 jobs.”
While a lesser increase in the minimum wage would not be as costly, we should still expect it to disproportionately affect places like Texas, where both wages and the cost of living are lower than it high wage/high cost coastal cities.
Advocates of increasing the minimum wage certainly don’t want to throw people out of work. But if they aren’t careful, that’s exactly what will happen. Texas has been successful in recent decades because its free and flexible job market has allowed continued job growth. It would be a mistake to mess with that.
Image by Leena Robinson