There is conflicting opinion, research and statistical data about the impact of minimum wage increases or decreases to the state-level and federal-level economies. From a microeconomics perspective, there is enough supporting evidence that minimum wage increases maintain negative outcomes to the economy. In similar accord, thinking from a macro perspective, minimum wage increases create similar negative economic conditions. Based on research and statistics, it should be said that minimum wage rates, when increasing rather than remaining steady, have broad negative consequences to state and federal economies.
The Evidence
Some of the highest state-issued minimum wage rates are Vermont at $8.46, Washington at $9.04 and Oregon at $8.80 (Parrott, 1). The intention of these increases was to improve poverty rates and also stimulate more consumption in the economy. However, a very recent news article indicates that the unemployment rate in Oregon has increased to 8.9 percent in September, up almost a whole percentage point in August (Foden-Vencil, 1). In Washington state, the unemployment rate rose from 8.3 percent in June to 8.6 percent in September (PSBJ, 1). In Vermont, the unemployment rate rose from 4.7 percent to five percent in August (CT Post, 1). Why is this significant?
The New England Public Policy Center indicates that rises in the minimum wage rate make it more inviting for business owners to cut employee benefits in an effort to offset higher payroll costs. A current study discovered statistically that when minimum wage rates increase by 20 percent, business-sponsored health care offerings to employees also decrease by four percent (NEPPC, 8). Because many business owners do not like to carry the stigma that is usually associated with social judgment for non-compliance to corporate social responsibility, they will often reduce hours of existing employees rather than slashing health care benefits (NEPPC, 8). All of these efforts are intended to prevent significant capital losses that occur when the minimum wage rates increases, especially important for small business owners without a strong cash or market position.
Three of the states having the highest minimum wage rates also all have increases in the unemployment rate at the state level. According to the National Center for Public Policy Research, minimum wage hikes actually cause job losses in the long-term (NCPPR, 1). This is because it is usually the small business owner that offers jobs at a minimum wage, however small businesses make up the majority of businesses currently operating in the United States. At the same time, small business owners are experiencing inflationary increases in their supply chain, cost of health care provision, distribution and transportation for finished products, and utility costs. Therefore, significant spikes in minimum wage cannot be offset except through investment and hedging strategies, which is something that small business is not in a position to consider.