Even though the federal minimum wage is scheduled to rise again this year ($7.25 on July 24), more and more states are increasing their minimum wage to an amount higher than the federal minimum. There are now twenty-seven states, plus the District of Columbia, that have a higher minimum than the federal minimum. An interactive map with details on minimum wage laws in the states is available here.
Back in 2004, when the federal minimum wage was $5.15 an hour, voters in my state of Florida approved a constitutional amendment to raise the minimum wage in Florida to $6.15 an hour, effective on May 2, 2005. I blogged about this back on January 1, 2005, and wrote about it for Freedom Daily in November of 2005. In 2005, only twelve states and the District of Columbia had a state minimum wage that was higher than the federal rate.
Well, the minimum wage in Florida just increased again. Because the Florida minimum wage is recalculated every year, based on the increase in the consumer price index during the preceding 12 months, it went from $6.15 an hour in 2005 to $6.40 an hour in 2006 to $6.67 an hour in 2007 to $6.79 an hour in 2008 to $7.21 an hour in 2009. The new rate is published in October and takes effect in January of the following year.
What we see after a minimum wage increase is the unskilled minimum-wage worker bringing home a little extra money. What we don’t see is the increase in the employer’s labor cost, Social Security taxes, Medicare taxes, unemployment taxes, and workers compensation premiums.
I usually don’t pay much attention to anything related to economics in my local newspaper, but in a recent article titled “The Florida Minimum Wage Debate: Does $7.21 an hour help or hurt small businesses?”, a local economist at the University of West Florida showed that he had more sense than Senate Republican Minority Leader Mitch McConnell, who thinks that “raising the minimum wage is a good idea.”
According to the Pensacola News Journal:
UWF economist Rick Harper said the minimum wage hike is a double-edged sword. The new wage does provide something of a financial floor for the lowest paid workers, he said. But the negative effect of the hike is that “when labor costs move up, even a little bit, employers start looking for substitutes for labor.” Harper, director of the Haas Center for Business Research and Economic Development, said that might include a fast-food restaurant owner buying an automatic fryer instead of hiring another employee to handle that particular task. When wages are forced up without an increase in productivity, “fewer people get jobs, and those most affected are young people and, disproportionately, minorities.”
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Minimum wage laws will be disastrous for companies needing to lower employee wages below the current minimum wage rate in our inflationary business cycle to stay operating.
This should really help struggling businesses hire the unemployed. Great timing!
The people who propose these hikes defend them with the most laughable kind of circular logic.
As long as government subsidizes people who choose not to work, the minimum wage is irrelevant, I think. You can probably get more money by not working in most states. Alaska, for example is a gigantic welfare state.
to prettyskin:
it is relevant to the extent that there are people willing to work for rates below the minimum, and who are not eligible, or not interested in being welfare recipients.
They may just well be the next generation of recipients since eligibility is within reach.
“…not interested in being welfare recipients.” When circumstances change, so does interest. Minimum wage laws exploits the vulnerable and undocumented only for a time.
Actually, after thinking about it awhile. I think the libertarian position should be that the min wage be set to $1000 per hour. (that would force all labor into the black market off of the tax roles)
And if a liberal objects and says that there won’t be enough jobs. Just say, “what’s the matter with you, jerk! don’t you care that the poor folks have a chance to make it. Those rich ‘SOB’ employers could really afford it if they wanted to.”
David, that would only work until hyperinflation sets in.
Yes, but then the government can just multiply the minimum wage by 10x every week. It’s brilliant.
I’ve said it once, I’ll say it again: Let’s get government to intervene in every way possible! That way, economic activity can skid to a halt as quickly as possible, leaving no way to blame libertarians. Perhaps a recovery may be possible in my lifetime.
sounds to me like the real problem is an oppressive amount of taxes and withholdings forced upon employers by the government, not paying teenagers to much.
Sam owns a business and employs three minimum wage janitors, all of whom are high-school drop-outs. When a minimum wage increase is passed that he feels forces him to pay the three janitors more than they are worth to him Sam makes two of them work harder for their raise – and he fires the third.
The first two janitors are interviewed by CNN and MSNBC, during which they thank their generous Democrat Congressman for voting for the mandated increase. CNN and MSNBC don’t interview the third janitor who was fired, because it doesn’t occur to their reporters that such a person exists.
What is worse is the timing. The fact that we are entering a long recession will mean more unemployement and these laws wont help one bit…
Robert, interesting idea, but my goal is different than yours (no way to blame libertarians). I better goal, in my humble opinion, would be to allow commerce to flourish without any government interference.
I am very intrigued by the ideas of possibly getting rid of minimum wage and plan on writing a research paper on the issue. Any advice on the most important points and factors to focus on?
Jeff, the most important thing about minimum wages through regulation is their point of impact – where the burden first hits, the employer – and not the incidence – who ultimately pays, the consumers and the wider economy. This shows up fairly well from looking into the details of another approach to minimum wages that doesn’t have the same disincentives to employment, a Negative Payroll Tax, the work of Professor Kim Swales of the University of Strathclyde and his colleagues (I also did some independent work on it). That approach has to do with eliminating labour market imperfections with a Pigovian virtual subsidy, through incentives at the point of impact which have nothing to do with incidence at all.
Anyhow, most off the shelf economists are so used to final payers being what counts that they only ever model or analyse things that way, so their work never shows any of the effects of individual employers making individual hire and fire decisions. They will always come back at you pointing out something that is entirely irrelevant, that Payroll Taxes or minimum wages through regulation don’t throw much burden on the aggregates they are looking at and won’t reduce economic activity much. They completely miss the way employers will substitute, making fewer employees work harder or replacing them with equipment. Your problem is going to be, making the off the shelf economists or people who take advice from them pay attention to the point of impact. But the off the shelf economists are trained to have a blind spot there and not even know they have one.
There is only one thing minimum wages through regulation have going for them: in the very short term, until employers respond as others have described, current workers earn more. That means it can work like a tourniquet to buy time while you do something sensible about some deeper problem – and, like a tourniquet, if that’s all you do you will damage the affected part by restricting the circulation. Far too many people just hear the very short term message and tune out after that.
Now that the bill passed on July 24, the minimum has been raised to 7.25 an hour. Even though this has been done to help the blue collar people its not really affective. They still are struggling to maintain their families. Most of them are on the poverty line or below the poverty line in maintaining their families. Bishop Nicholas DiMarzio states that, ” The Unite States Bishops’ conference has supported the minimum wage since its inception as a just means to protect the human rights and dignity of workers.” This money will only help them on basic necessities such as groceries, electricity, rent and transportation. Now days to even have a job, blue collar or whatever it may be you need to at least have an education. Most jobs require you to at least have your high school diploma. Most minimum wage owners are educated which shows productiveness. Raising the minimum wage does help, but not a whole lot. It still leaves people struggling to pay their necessities.
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