Published December 20, 2015
Maybe a higher minimum wage isn't so bad for job growth after all.
The 13 U.S. states that raised their minimum wages at the beginning of this year are adding jobs at a faster pace than those that did not, providing some counter-intuitive fuel to the debate over what impact a higher minimum has on hiring trends.
Many business groups argue that raising the minimum wage discourages job growth by increasing the cost of hiring. A Congressional Budget Office report earlier this year lent some support for that view. It found that a minimum wage of $10.10 an hour, as President Obama supports, could cost 500,000 jobs nationwide.
But the state-by-state hiring data, released Friday by the Labor Department, provides ammunition to those who disagree. Economists who support a higher minimum say the figures are encouraging, though they acknowledge they don't establish a cause and effect. There are many possible reasons hiring might accelerate in a particular state.
"It raises serious questions about the claims that a raise in the minimum wage is a jobs disaster," said John Schmitt, a senior economist at the liberal Center for Economic and Policy Research. The job data "isn't definitive," he added, but is "probably a reasonable first cut at what's going on."
Just last week, Obama cited the better performance by the 13 states in support of his proposal for boosting the minimum wage nationwide.
"When ... you raise the minimum wage, you give a bigger chance to folks who are climbing the ladder, working hard.... And the whole economy does better, including businesses," Obama said in Denver.
In the 13 states that boosted their minimums at the beginning of the year, the number of jobs grew an average of 0.85 percent from January through June. The average for the other 37 states was 0.61 percent.
Nine of the 13 states increased their minimum wages automatically in line with inflation: Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington. Four more states — Connecticut, New Jersey, New York and Rhode Island — approved legislation mandating the increases.
Twelve of those states have seen job growth this year, while employment in Vermont has been flat. The number of jobs in Florida has risen 1.6 percent this year, the most of the 13 states with higher minimums. Its minimum rose to $7.93 an hour from $7.79 last year.
Some economists argue that six months of data isn't enough to draw conclusions.
"It's too early to tell," said Stan Veuger, a scholar at the American Enterprise Institute. "These states are very different along all kinds of dimensions."
For example, the number of jobs in North Dakota — which didn't raise the minimum wage and has prospered because of a boom in oil and gas drilling — rose 2.8 percent since the start of this year, the most of any state.
But job growth in the aging industrial state of Ohio was just 0.7 percent after its minimum rose to $7.95 from $7.85. The federal minimum wage is $7.25.
Veuger, one of the 500 economists who signed a letter in March opposed to an increase in the federal minimum, said the higher wages should over time cause employers to hire fewer workers. They may also replace them with new technologies.
The Congressional Budget Office cited those factors in its February report. But in addition to job losses, the CBO also said a higher minimum could boost paychecks for another 16.5 million workers.
Sylvia Allegretto, an economist at the University of California, Berkeley, said that research comparing counties in states that raised their minimums with neighboring counties in states that did not has found no negative impact on employment.
Restaurants and other low-wage employers may have other ways of offsetting the cost of higher wages, aside from cutting back on hiring, she said. Higher pay can reduce staff turnover and save on hiring and training costs.
State and local governments have become increasingly active on the issue as the federal minimum wage has remained unchanged for five years. Twenty-two states currently have higher minimums than the federal requirement.
And 38 states have considered minimum wage legislation this year, the most on record, according to the National Conference of State Legislatures. At least 16 will boost their minimums starting next year, the NCSL says.