As the White House renews its call for an increase in the minimum wage, it’s worth assessing the impact such a policy would have. The proposal is intended to increase the welfare of low-wage earners, a noble goal. But what happens to future job growth? Turns out an increase to a $9 minimum wage would cost nearly 1.4 million new jobs.

While there is an ongoing controversy regarding the impact of the minimum wage in the level of employment, new research by Meer and West (2013) suggests that a negative impact of the minimum wage can be isolated by focusing on employment dynamics. Specifically, they find that a 10 percent increase in the real minimum wage is associated with a 0.53 percentage point decrease in the net job growth rate.[1]

In a recent study, AAF applied Meer and West’s work to California’s new law that raises the state’s minimum wage from $8 per hour to $10 per hour (effective in 2016), finding that the wage increase will cost the state 191,000 new jobs. If every state followed suit, over 2.3 million jobs would be lost nationwide. Similarly, a $9 federal minimum wage can be detrimental to job growth.

Using the same data and methodology, [2] AAF finds that the White House’s proposal to raise the federal minimum wage to $9 per hour would cost almost 1.4 million new jobs across the country. Illustrated in the table below, the net job growth rate would shrink in every state except Washington, where the state minimum wage is already above $9 per hour. In addition, several states would have negative net job growth rates, indicating that the number of jobs would decrease. 18 states and the District of Columbia are currently experiencing positive employment growth and would face a decrease in employment if the minimum wage were $9 per hour. As with a $10 minimum wage, the cost of a $9 minimum wage is clearly quite high for the 11.3 million unemployed persons currently looking for work.

 

Reduced Hiring with a $9 Minimum Wage (in thousands)

State

Loss in Job Growth

Current Net Job Growth

Net Job Growth with $9 Minimum Wage

 

 

 

 

Total

1380.3

2026.7

646.4

 

 

 

 

Alabama

24.1

13.3

-10.8

Alaska

2.9

-1.8

-4.7

Arizona

20.1

48.7

28.6

Arkansa

15.0

12.2

-2.8

California

95.7

223.9

128.2

Colorado

19.2

56.8

37.6

Connecticut

7.9

15.4

7.5

Delaware

5.4

6.7

1.3

District of Columbia

3.5

1.4

-2.1

Florida

61.0

131.4

70.4

Georgia

50.6

91.6

41.0

Hawaii

7.8

2.3

-5.5

Idaho

8.0

17.5

9.5

Illinois

27.7

55.4

27.7

Indiana

37.2

50.6

13.4

Iowa

19.4

19.8

0.4

Kansas

17.4

13.8

-3.6

Kentucky

23.4

21.3

-2.1

Louisiana

24.6

38.9

14.3

Maine

6.3

4.1

-2.2

Maryland

32.9

43.3

10.4

Massachusetts

21.7

45.1

23.4

Michigan

46.2

67.7

21.5

Minnesota

34.9

56.9

22.0

Mississippi

14.1

20.4

6.3

Missouri

31.8

36.6

4.8

Montana

3.6

8.4

4.8

Nebraska

12.3

9.5

-2.8

Nevada

14.6

25.2

10.6

New Hampshire

8.1

5.3

-2.8

New Jersey

49.8

64.7

14.9

New Mexico

8.5

8.9

0.4

New York

112.8

92.5

-20.3

North Carolina

51.0

66.7

15.7

North Dakota

5.6

13.1

7.5

Ohio

40.1

32.5

-7.6

Oklahoma

20.6

9.8

-10.8

Oregon

0.5

27.7

27.2

Pennsylvania

73.3

39.1

-34.2

Rhode Island

4.0

1.7

-2.3

South Carolina

23.7

35.2

11.5

South Dakota

5.3

5.8

0.5

Tennessee

34.7

32.2

-2.5

Texas

139.6

274.7

135.1

Utah

16.0

32.1

16.1

Vermont

0.7

4.6

3.9

Virginia

47.7

33.3

-14.4

Washington

0.0

64.3

64.3

West Virginia

9.8

7.6

-2.2

Wisconsin

35.6

35.3

-0.3

Wyoming

3.7

3.2

-0.5

 



[1] Jonathan Meer and Jeremy West, “Effects of the Minimum Wage on Employment Dynamics,” (July 2013), available at http://econweb.tamu.edu/jmeer/Meer_West_Minimum_Wage.pdf

[2] For methodology details, see Ben Gitis, “The Steep Cost of a $10 Minimum Wage,” (October 2013), available at http://americanactionforum.org/research/the-steep-cost-of-a-10-minimum-wage