U.S. minimum wage increase would improve Mass. competitiveness
By George Treyz and Frederick Treyz
Raising the federal minimum wage from its current $5.15 per hour to $7.25 would eliminate one out of every 1,000 jobs in the U.S., but the results are substantially different from state to state. Our findings indicate that Massachusetts (see editor’s note below) is the fourth least likely of the 50 states and the District of Columbia to feel the effects of an increase in the minimum wage.
Many econometric studies examine the effects of a minimum wage increase on the employment of major categories of affected workers. However, they don’t use a comprehensive regional economic model to capture the key linkages between the wage increases, cost of production increases, and increased prices that lead to shifts in interstate sales as well as increasing imports and reducing exports to the rest of the world.
To more precisely determine the employment and economic effects, we conducted a study that provides estimates based on following all of the cause and effect links in all U.S. states and industries, as well as the effect of higher wages and prices on consumer spending.
Four of the findings in our study:
1. A federal minimum wage increase to $7.25 an hour in 2007 will decrease U.S. employment by -0.11 percent in 2007, -0.17 percent in 2009, and -0.28 percent in 2017, if it begins in 2007 and is increased by the same percentage as the change in average wage rates in future years.
2. The new minimum wage would affect the 6.8 percent of U.S. workers whose current wages are below the new minimum; their average wage increase would be 6.6 percent. If the entire net U.S. loss of jobs falls on the 6.8 percent of workers that are affected by the increase in wages, this implies that 1.6 jobs would be lost per 100 affected workers in 2007, 2.5 jobs would be lost per 100 affected workers in 2009, and 4 jobs would be lost per 100 affected workers in 2017. This amount will be larger if some of the current low-wage workers are replaced by more skilled higher-wage workers.
3. By 2009, the group of states with the lowest percentage of workers affected would have a production cost increase of 0.13 percent and lose 0.10 percent of their employees, while the one-third of states with the highest production cost increase of 0.65 percent would lose 0.23 percent of their employees, which is more than twice the loss of the states which are least affected by the increase in the federal minimum wage.
4. The 5 states with the lowest production cost increases and smallest average employment decreases are, in order: Washington, Oregon, Connecticut, Massachusetts, Rhode Island. The 5 states with the highest production cost increases and largest average employment decreases are, in order: New Mexico, Louisiana, Texas, Arizona, Mississippi.
Massachusetts has little to lose from an increase in the federal minimum wage, and would benefit from a competitive standpoint against other states in the business sectors most affected, if the wage floor were raised nationwide. An increase in the federal minimum wage would decrease the incentive for business sectors to exit Massachusetts for lower-cost venues elsewhere.
George Treyz is Chief Research Economist and chair of the board of directors for Regional Economic Models Inc., based in Amherst. Frederick Treyz is President and CEO and Chief Economist of the company. They can be reached at (413) 549-1169, or george@remi.com
Editor’s note: Effective January 1, the Massachusetts minimum wage has risen from $6.75 to $7.50. Another $0.50 increase planned for next year will bring the state’s minimum wage to $8.00 an hour.
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