The Associated Press reported with unrestrainable glee on July 19th that 13 states that raised their minimum wage rate at the beginning of this year were growing jobs at a rate faster than the 37 states that did not boost the minimum wage—averaging 0.85 percent growth from January through June compared to just 0.61 percent for the states not pushing the minimum wage higher. As usual the reporter was able to find supporters of minimum wage increases who were happy to say “I told you so”, including quoting the President himself who commented earlier that this data prove we need a national minimum wage hike.
But as is the duty of responsible economists, the Institute is compelled to look at the data to see what the real story is. As will be demonstrated in this short report, the claim of faster growth this year in the states raising minimum wages is grossly misleading, factually incorrect, and fails to examine the data in a way to create a meaningful demonstration of the effects of higher minimum wages. The problem is this kind of report is not questioned by very many people and plays in to the hands of proponents of minimum wage who point to it as “statistical proof” of their argument. Thus, the need for someone to provide an accurate picture of what the numbers really say.
First of all, the AP story does not say which job measure was used: establishment payroll counts or the household survey estimate. And if it is establishment data which measure—nonfarm payrolls that include government jobs or total private?
We will look at total private since it is far more likely a minimum wage increase would affect private sector employment, especially those in the traditional lower skill, lower paying jobs. Of the 13 states with minimum wage increases in 2014, nine raised the wage automatically to adjust for inflation. The other four had passed new legislation boosting the rate. The nine adjusting for inflation were: Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington. The other four were Connecticut, New Jersey, New York, and Rhode Island.
There are four major indicators of effects we need to analyze to gauge the accuracy and import of the AP story—namely, January to June job growth of 2014, January to June job growth in 2013, average work week in June 2014 and work week in June 2013. To begin we calculate the figures for the U.S. as a whole. Private employment climbed 1.0 percent in 2014 and 0.91 percent in 2013. The average work week stood at 34.5 hours in both 2013 and 2014. So it must be asked: where does the AP report get the 0.85 percent job gain for minimum wage raising states and 0.61 percent gain for states not raising the minimum? How can both groups be growing more slowly than the national rate? It could be some unexplained mathematical manipulation or it could be some other choice of employment measure.
Here is where the real questioning begins. Of the 13 states raising the minimum wage in 2014, only four grew private employment faster than the national average, Florida at 1.7 percent had by far the largest rise, followed by Colorado and Washington at 1.4 percent and Oregon at 1.12 percent. The other nine states trailed the national gain of 1.0 percent. Connecticut was close at 0.95 percent. Arizona at 0.17 percent and Vermont at negative 0.74 fared worst. The remainder grew as follows; New Jersey (0.4 percent), Rhode Island (0.48 percent), Ohio (0.58 percent), Montana (0.70 percent), New York (0.79 percent), and Missouri (0.85 percent). Oregon grew at the same pace in both years. A simple average of these states’ growth rates is 0.75 percent, significantly below the national gain of 1.0 percent. With nine states not matching national growth, it is surprisingly strange that a claim of a boost in employment growth from raising the minimum wage has been made.
But it gets worse, only four of the states showed faster gains in 2014 compared to the January to June expansion in 2013: Florida (1.2 pct.to 1.7 pct.), Missouri (0.60 pct. to 0.85 pct.), Washington (0.95 pct. to 1.4 pct.), and Connecticut (0.56 pct.to 0.95 pct.). Of the eight states experiencing slower growth some were quite dramatic including Arizona (1.00 pct. to 0.17 pct.), Vermont (0.40 pct. to -0.74 pct.). Others with major slippage in growth were; Montana (1.18 pct. to 0.70 pct.), Ohio (0.96 pct. to 0.58 pct.), New Jersey (0.70 pct. to 0.40 pct.), and Rhode Island (0.83 pct. to 0.48 pct.). New York (0.89 to 0.79 and Colorado (1.5 to 1.4 ) saw more modest 0.1 percent drops in job gains. Oregon was unchanged.
And here is an interesting tidbit. Pennsylvania, where the minimum wage was not raised, saw its first half job growth triple the first half of 2013 number, rising from 0.23 percent to 0.67 percent. What all this points to is that the factors driving job gains among the states are enormously varied. For example, Florida’s exceptional performance can probably be traced to its very favorable business climate as well as the ending of the dreadful real estate bust that occurred six years ago. Stronger tourism and in–migration numbers might also be playing a big part. Absent a careful look at the job growth by industry in each state it is not possible to say with a high degree of confidence exactly why employment growth by state behaves the way it has this year compared to last year.
To conclude this section, we calculate the simple average of growth in the first half of 2013 for the 13 states to be 0.91 percent, exactly the same as the nation’s 0.91 percent for 2013, but considerably faster than the 0.75 percent average for the same 13 states in 2014. Thus, it would seem the excited comments about minimum wage increases leading to faster jobs gains are just another misleading statistical concoction put out by those who desperately want their feeble theoretical arguments to be true.
But there’s more. What makes the picture even more disturbing is that eight of the states saw their average work week shorten from June 2013 to June 2014. Three had longer average work weeks in 2014 and two remained unchanged as did the national average work week—along with Pennsylvania’s.
All told, the AP story provides no credible evidence for the notion that higher minimum wages will lead to faster job gains or income growth.
Beyond the numbers presented herein, it is important to bear in mind that higher minimum wages can lead to shorter hours, reduced benefits and/or more duties and responsibilities with no additional time to do them. So even if the number of jobs were not affected immediately, there could be other major impacts on employees’ earnings and workloads. Moreover, any substantial boost in wages above the market wage can create upward pressure on a company’s entire wage structure or disgruntled employees who have worked to get the experience and skills to earn $3 to $4 more than the minimum only to have that gap wiped out by a government mandate.
Finally, it is important to bear in mind how many, if any, workers are affected in each state by a minimum wage hike. If entry level wages in fast food restaurants in New York are $8.50, say, owing to market supply and demand, an increase of a state mandated minimum wage to $8.25 will have no little or effect on hiring.
To sum up, perhaps next time someone will do some serious analysis and fact checking before putting out propaganda passing itself off as a serious research report as the AP has done with the minimum wage story.
