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Arkansas And Missouri Just Raised Unemployment By Raising The Minimum Wage In The Elections

Democracy does indeed mean that we get to make any damn fool mistake that we vote for. This is not to say that any damn fool thing that we vote for is a good idea. So it is with the measures on the ballot paper in Missouri and Arkansas, where they’ve decided to raise the minimum wage. The effect of which is going to be to reduce the number of jobs – or at very best, the number of hours of work available. The reason why being that the minimums voted for are simply too high relative to median wages in those states.

Sure, “too high” is a loaded phrase but we do have a rule of thumb plus some more recent empirical evidence.

The lowest-paid workers across Missouri will see their hourly wages increase soon, thanks to a ballot measure passed Tuesday.

A majority of voters approved an initiative that will gradually raise the wage floor throughout the state to $12 per hour. The Missouri minimum wage, currently set at $7.85, will bump to $8.60 next year, then increase 85 cents each year thereafter until it reaches $12 in 2023. After that, it would rise or fall each year according to an inflation index.

The only thing wrong with that first sentence here is that it’s lacking the necessary “some.” Most certainly, some to many to near all of the state’s low paid workers will get a raise in pay per hour. But there’s a cost to this – there’s always a cost to everything.

More than 600,000 workers in Missouri are getting a raise.

Voters in Missouri approved Proposition B, a ballot measure that will gradually hike the state’s minimum wage to $12 an hour by 2023. That’s a 53 percent raise over five years.

Hundreds of thousands of workers in the state who earn the minimum wage will get larger paychecks starting next year, when the first wage increase goes into effect.

Again, we need to add that “some” in that first sentence. And again in the last. Because not all people currently employed will remain so, nor will all those who remain employed be offered the same hours they are now.

“Voters are saying ‘enough’ to an economy that’s leaving too many struggling families behind,” said Jonathan Schleifer, executive director of The Fairness Project, an advocacy group that pushed for the initiatives.

“Real wages for working families haven’t budged in decades, and the disparities between the ‘haves’ and ‘have nots’ continues to grow,” he added.

Great. But we’ve still got to ask ourselves whether this is the right thing to be doing to achieve our goal. Which it ain’t:

The lowest earners in Arkansas will see higher hourly pay next year thanks to a ballot initiative passed by voters Tuesday.

Arkansans approved a proposal known as Issue 5 that will gradually hike the state’s minimum wage from its current rate of $8.50 to $11 per hour. The rate will increase first to $9 on Jan. 1, then to $10 in 2020 and finally to $11 in 2021.

That missing “some” again. Our general rule of thumb is that a minimum wage above around 50% of the local median wage produces jobs losses. The median wages in Arkansas and Missouri are $14.48 and $16.46. The new minimum wages are well above that 50% of those medians, we therefore expect jobs losses.

Do, please, understand that there is a general consensus about the effects of minimum wages. Low, or modest, ones have modest effects upon employment. Very high ones all agree would have large effects. The only discussion is about where is the dividing line. That rule of thumb at about 50% being the best we’ve got.

We’ve also got recent empirical evidence:

At which point we have the University of Washington study into the Seattle minimum wage hike. This says that hourly wages have risen and hours worked fallen. This isn’t a surprise at all. But the hours have fallen more, meaning that weekly incomes have actually fallen among those very low-paid people that minimum wage hikes are supposedly helping. A more recent study from Berkeley tries to refute this but also agrees that it doesn’t have and therefore hasn’t looked at detailed data on hours worked. So, obviously enough, the Berkeley study is missing the claimed effect entirely.

No one doubts the aim here, the purpose of those rises in the minimum wage is to increase the incomes of those lowly paid. The only problem with the votes and the new laws is that it doesn’t actually work that way. It simply isn’t true that minimum wage rises raise the incomes of all of those formerly earning minimum wage. Sadly, that really is true.

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5 years ago

The basic problem is that those who advocate for higher minimum wages do not consider the job losses to be an issue. First of all, actual job losses may be fairly slim, though there could be hour cutbacks and thus reductions in overall pay even if at higher hourly rates. Also, there could be cuts in benefits as for some employers the cost of employing a low wage person may carry with it a benefit burden of close to 40%. Cut a few points out of that and you can recoup some of the higher minimum wage. Basically, the advocates… Read more »

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