Minimum wage increase during economic pressures of the pandemic

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Question: 

We currently have a potentially specious amendment on our ballot to progressively raise the state minimum wage to $15/hour by 2026 (currently at $8.56, proposed increase to $10 in Sept 2021, then $1 increase/year). My understanding is that anything above a 15% increase in minimum wage can have greater negative effects than positive under normal market conditions. The initial increase would fall above this threshold. While I am aware of a study that observed only minor initial increases in the costs of individual goods in relation to increased minimum wages, when all of these minor increases are added together, doesn't it negate the increased spending power for a minimum wage worker?

Yet, we are not currently under normal market conditions. I believe it is unlikely that our economy will be very far along in recovery from the economic fallout of the pandemic as the increases go into effect. Given the additional pressures of increased costs in goods, materials, and additional sanitization practices and equipment, coupled with uncertainty and reduced spending in most categories leading to numerous businesses of all sizes already reducing staff or failing completely, will mandating this at this time lead to even more job losses, business closures, and their related losses to the tax base?

While I recognize how stagnant wages have been and the crunch of the resulting loss in buying power as the costs of goods have increased (made even worse by the pandemic), I am concerned that voting to approve this measure at this moment will lead to cascading failure. Of course, I want to fight for people to make a fair wage. Though, if there aren't going to be enough jobs left from which to earn, it becomes a poisoned chalice. Furthermore, this will have an unbalanced impact in less metropolitan areas with a lower median wage versus areas that already have a higher median wage and can absorb it more easily.

Answer: 

Florida is putting a minimum wage to a referendum of voters. The proposed minimum wage policy would raise the minimum wage from its current $8.86 to $10.00 per hour effective September 30th, 2021. Each September 30th thereafter, the minimum wage shall increase by $1.00 per hour until the minimum wage reaches $15.00 per hour on September 30th, 2026. From that point forward, future minimum wage increases will be tied to the annual rate of inflation.

To examine how the minimum wage will affect employment in Florida by area, I take advantage of the U.S. Bureau of Labor Statistics Occupational Employment Statistics. Table 1 shows the wages at the 10th, 25th, 50th, 75th, and 90th percentile of each area's wage distribution in 2019. The areas are listed in order of the median wage. The highest median is in Palm Bay-Melbourne-Titusville in east central Florida where the median worker is paid $17.98 per hour. The lowest median wages are in central Florida with the median wage in Sebring, Florida at $13.94 per hour. The adverse employment effects of the minimum wage will be greatest in the local labor markets where the mandated wage will increase the cost of hiring workers the most. The implication is that the $15 minimum wage will lower employment most in Sebring and least in Palm Bay. In effect, the ranking of cities by their current median wage is in inverse order of their expected employment loss as a consequence of the increase in the minimum wage.

Table 1: 2019 Hourly Wage Distributions in Florida Metropolitan and Nonmetropolitan areas

 

Wage Percentile

Florida area

10th

25th

50th

75th

90th

Palm Bay-Melbourne-Titusville

9.63

12.16

17.98

29.19

48.13

Tampa-St. Petersburg-Clearwater

9.62

12.17

17.87

28.64

44.03

Miami-Fort Lauderdale-West Palm Beach

9.48

12.02

17.76

28.66

44.42

Jacksonville

9.63

12.14

17.68

27.74

41.42

Gainesville

9.50

12.01

17.56

28.08

43.23

Naples-Immokalee-Marco Island

9.96

12.75

17.53

26.97

40.37

Tallahassee

9.48

11.89

17.37

26.49

39.11

Port St. Lucie

9.50

11.86

17.17

26.11

38.41

North Port-Sarasota-Bradenton

9.69

12.09

17.00

25.51

38.09

Crestview-Fort Walton Beach-Destin

9.52

11.90

16.91

27.42

40.72

Cape Coral-Fort Myers

9.67

12.16

16.87

25.48

37.56

Lakeland-Winter Haven

9.46

11.63

16.55

24.34

35.54

Pensacola-Ferry Pass-Brent

9.41

11.50

16.55

25.17

37.22

Orlando-Kissimmee-Sanford

9.45

11.48

16.50

26.43

40.66

Panama City

9.43

11.65

16.27

25.09

38.51

South Florida nonmetropolitan area

9.35

11.48

16.07

23.00

33.67

Sebastian-Vero Beach

9.63

11.74

15.95

23.63

34.60

Punta Gorda

9.46

11.58

15.69

24.11

36.15

North Florida nonmetropolitan area

9.23

11.07

15.30

21.76

31.09

The Villages

9.25

11.06

15.18

23.44

34.75

Homosassa Springs

9.25

10.98

15.13

22.45

34.49

Deltona-Daytona Beach-Ormond Beach

9.28

11.04

15.11

22.49

32.77

Ocala

9.29

11.03

14.93

22.32

32.11

Sebring

9.17

10.51

13.94

20.09

30.06

Source:www.bls.gov/oes/tables.htm

We can estimate the share of workers that will have wages increased as a result of the minimum wage and also the percent increase in the cost of hiring the workers for each of these areas. Our estimates are shown in Table 2. For workers at the 10th percentile, the minimum wage would raise the cost of hiring by 56-64%, depending on the area. These are the jobs that are the most likely to face reduced employment prospects as a consequence of the minimum wage policy. As current wages rise, the percent increase in employment cost falls. For workers at the 25th percentile, the cost of hiring rises by 17-43%. At the median, most workers are unaffected by the policy.

Table 2: Estimated percent increase in wages caused by a $15 minimum wage and share of workers affected, by area

 

Percent increase in wage by wage percentile

Share of workers affected

Florida area

10th

25th

50th

Palm Bay-Melboume-Titusville

55.8%

23.4%

0.0%

37.2%

Tampa-St. Petersburg-Clearwater

55.9%

23.3%

0.0%

37.4%

Miami-Fort Lauderdale-West Palm Beach

58.2%

24.8%

0.0%

38.0%

Jacksonville

55.8%

23.6%

0.0%

37.9%

Gainesville

57.9%

24.9%

0.0%

38.5%

Naples-Immokalee-Marco Island

50.6%

17.6%

0.0%

36.8%

Tallahassee

58.2%

26.2%

0.0%

39.2%

Port St. Lucie

57.9%

26.5.%

0.0%

39.8%

North Port-Sarasota-Bradenton

54.8%

24.1%

0.0%

39.8%

Crestview-Fort Walton Beach-Destin

57.6%

26.1%

0.0%

40.5%

Cape Coral-Fort Myers

55.1%

23.4%

0.0%

40.1%

Lakeland-Winter Haven

58.6%

29.0%

0.0%

42.1%

Pensacola-Ferry Pass-Brent

59.4%

30.4%

0.0%

42.3%

Orlando-Kissimmee-Sanford

58.7%

30.7%

0.0%

42.5%

Panama City

59.1%

28.8%

0.0%

43.1%

South Florida nonmetropolitan area

60.4%

30.7%

0.0%

44.2%

Sebastian-Vero Beach

55.8%

27.8%

0.0%

44.4%

Punta Gorda

58.6%

29.5%

0.0%

45.8%

North Florida nonmetropolitan area

62.5%

35.5%

0.0%

48.2%

The Villages

62.2%

35.6%

0.0%

48.9%

Homosassa Springs

62.2%

36.6%

0.0%

49.2%

Deltona-Daytona Beach-Ormond Beach

61.6%

35.9%

0.0%

49.3%

Ocala

61.5.%

36.0%

0.5%

50.4%

Sebring

63.6%

42.7%

7.6%

57.7%

Source:www.bls.gov/oes/tables.htm

The minimum wage will have the greatest adverse impact on communities in central Florida with the lowest current wages including Sebring, Daytona, Ocala, the Villages and Homosassa Springs. Nonmetropolitan areas have lower current prevailing wages and so they will have the greatest employment losses as a result of the minimum wage. The last column of table 2 provides an estimate of percentage of workers that will be affected by the $15 minimum wage. The percentage of workers with rising employment costs ranges from 37% to 58% depending on the local market.

Small increases in the minimum wage are likely to have modest employment costs. Large increases in the minimum wage create much larger price distortions on the cost of labor and have larger adverse employment effects. The typical estimate of the adverse employment effects on a minimum wage increase is a 1 percentage point loss of employment for every 10 percentage point increase in the minimum wage. The current Florida minimum wage is $8.56. The $15 minimum wage would be a 75% increase, suggesting an employment loss of 7.5%. The employment losses would be concentrated among the least skilled including teenagers and high school dropouts.

In general, the minimum wage creates winners and losers. Winners are those who retain jobs at the higher pay and losers are those whose jobs are eliminated because they exceed the worker's value to employers. By phasing in the minimum wage increase over 6 years, some of the adverse costs of the minimum wage will be absorbed by inflation which may moderate some of the employment loss.

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Last updated on October 30, 2020