State study concludes minimum wage hike could clobber job market, slow economic growth
Putting significantly more money into the pockets of Mississippi’s lowest paid workers through a minimum wage increase to $10.10 an hour could actually deal a hard blow to the state’s jobs picture, personnel income levels and a key indicator of economic health, Gross Domestic Product.
So says a report by the University Research Center of the Mississippi Institutions of Higher Learning.
Raising Mississippi’s hourly minimum wage to $10.10 would cost the state over the following 20 years the an annual equivalent of about double the number of jobs provided at both the Nissan and Toyota plants, according to job loss projections compiled by the study’s author, Pete Walley.
Walley, director of the University Research Center’s Economic Development Planning Bureau, put the job loss in the first year of a state-enacted minimum wage increase to $10.10 an hour at 1,766 jobs, going to 3,483 the following year (2016) and to 4,897 the year after. Job losses would peak at 9,139 in 2028 before beginning a decline to 9,128 in 2029 and ranging from around 9,000 to 8,800 through 2035.
Minimum wage workers who stay employed after the jump to $10.10 an hour would share in $494.6 million annually in wage growth, with retail workers garnering the bulk of the growth at $72.4 million.
Wage levels for the lowest paid food service workers would grow by $68 million a year $53 million a year for minimum wage earners in state and local government.
Mississippi workers receiving wages at or below the minimum wage comprise about 6.4 percent of hourly workers, the study said, citing 2012 statistics from the Bureau of Labor Statistics. The BLS that year estimated that 45,000 Mississippi workers received $7.25 an hour or less. Of these, 23,000 were paid below minimum wage.
While Walley acknowledges Mississippi lawmakers are unlikely to require a pay hike for the state’s lowest paid workers, voter support is very strong nationwide for President Obama’s proposed increase of the minimum wage from the current $7.25 to $10.10 and tagging later increases to the annual rate of inflation, making a higher national wage likely in the near term. A federal increase to $10.10 would not cost Mississippi as many jobs as a state-enacted increase — but only slightly so, Walley said. He based the marginal difference between the effects of a state or federal increase on an increased pace of in-and-out migration of workers that would occur with a higher wage mandated for all states.
“We might see the job loss moderate a little bit,” with a unilateral increase at the federal level, he said.
Mississippi, Alabama, Louisiana, South Carolina and Tennessee — all with some of the nation’s highest percentages of low wage earners — have no state minimum wage law. Federal rates apply in these states.
Federal minimum wage is $7.25 an hour, while tipped employees such as waitstaff may be paid as little as $2.13 an hour, but must be paid the difference if their total income does not add up to $7.25.
Already this year an estimated 2.56 million U.S. workers will get a boost in their paychecks with the raising of minimum wage levels in 13 states.
Of the 2.56 million workers estimated to benefit from the increase, 1.4 million will be directly impacted. They currently earn the minimum wage and will be bumped up to the new rate. Another 1.1 million make just over the new minimum wage, and thus are assumed to receive a raise as employer pay scales are adjusted upward to reflect the new minimum wage.
Walley’s study projects the net change to real personal income related to a minimum wage increase to go up by $389 million in 2015 before declining to $326 million in 2016 and continuing to decline through 2023, when it reaches $7.2 million. After that, personal income drops into negative territory at $21.8 million in 2024 and continues to decline yearly until it reaches a negative $266 million in 2035, according to University Research Center study.
A further negative the study noted: A lowering of Mississippi’s GDP by $589 million from 2015 through 2028.
The prospects for jobs losses have come to the forefront of the minimum wage debate in recent months. A study by the Congressional Budget Office projected a fully implemented minimum wage increase to $10.10 could cost the nation 500,000 jobs, though the CBO further noted data showed actual losses could range from zero to one million.
Walley’s analysis used what he describes as a “robust” model prepared by Regional Economy Models Inc. The study used a simulation model consisting of 160 Mississippi economic sectors, he said.
The policy variables changed in the model were production costs caused by higher labor costs and “wage bill” related to the higher rates of pay employers would pay workers. Each variable carried an equal amount, the study said.
The model employed by Walley theorizes that increases in business production cost will decrease the relative competitiveness of a regional industry through reduced market share. The result is lower output and less employment demand, according to the model.
Walley said creating a workforce able to fill high skilled jobs would help counter the loss of jobs a minimum wage hike would cause. “This sounds so passé, but it is incumbent on us to hold up the mantra that the individual has to gain more skills to keep the economy up.”
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