This week, 13 states are raising the minimum wage that must be paid to workers in those states:
Here are the states increasing their minimum wages on Jan. 1:
Arizona– from $7.80 to $7.90 an hour
California– from $8.00 to $9 an hour
Colorado– from $7.78 to $8 an hour
Connecticut– from $8.25 to $8.70 an hour
Florida– from $7.79 to $7.93 an hour
Missouri– from $7.35 to $7.50 an hour
Montana– from $7.80 to $7.90 an hour
New Jersey– from $7.25 to $8.25 an hour
New York– from $7.25 to $8 an hour
Ohio– from $7.85 to $7.95 an hour
Oregon– from $8.95 to $9.10 an hour
Rhode Island– from $7.75 to $8 an hour
Vermont– from $8.60 to $8.73 an hour
Washington– from $9.19 to $9.32 an hour
Nine of the states are increasing the minimum wage by between 1% and 3.23%. These states may see mild increases in unemployment, if there is any change at all. The increase in the minimum wage in these states is pretty low, and may not have much of an impact on unemployment.
In the other four states, there may be a larger effect. Connecticut is increasing the minimum wage by 5.45%, while California, New Jersey, and New York are increasing their minimum wage by more than 10%.
Economists have known for decades that increases in the minimum wage always result in higher unemployment rates. That employee in California who was worth hiring at $8 an hour might not be worth hiring at $9 an hour. In economic terms, it doesn’t make sense to hire an employee and pay him $9 an hour if your company only receives $8.99 in benefits from hiring him. The increase in the minimum wage has made this employee and others like him unemployable.
In addition to the marginal benefit-marginal cost argument, most businesses have a limit on how much they can pay their employees. That is, there is only so much money available to pay their employees. When the minimum wage rises, these businesses have to decide if they are going to either (1) raise the price of their product(s) to compensate for the increase in labor costs, which will reduce demand for their product(s) and result in less revenue; or (2) fire some employees. Either way, an increase in the minimum wage results in fewer people being employed.
Another thing that people don’t realize is that when the minimum wage is increased for entry-level workers, all hourly workers receive an increase in their wages. That’s right, if you are currently making $9.00 an hour in California, your employer will be forced to increase the amount they pay you or risk having you quit.
Lest you think that I have no real-world experience, I can tell you that my first job in 1989 paid me a whopping $3.35 an hour (the federal minimum wage at that time). Not a lot of money, but I had no work experience outside of working on a farm. And I got periodic raises as I increased my skill level. And not all workers are going to be making the minimum wage for their whole lives. Within 4 years of being hired, I was making $9.25 an hour.
Once again, here’s the real problem:
The reason why people can’t make ends meet isn’t because the minimum wage is too low. It’s because the Federal Reserve is reducing their real income (i.e., the amount of goods that they can buy with the
dollars Federal Reserve Notes they are paid).
If we want to help people out, we need to get the Fed to stop debasing the currency.