Minimum Wage

Maine’s minimum wage is unworkable for small, rural employers

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Maine employers have been struggling to meet the demands of Question 4 since its passage. The initial swell in 2017 followed by subsequent, one dollar annual increases in the minimum wage has forced employers to recalculate in order to stay afloat. For companies that hire several minimum wage workers, the difference in labor costs is tens, if not hundreds, of thousands of dollars a year.

Consider this: A small local grocer has 10 minimum wage workers who work 35 hours a week. From 2016 to 2017, the minimum wage jumped by $1.50. For each hour those 10 minimum wage employees work, the employer must pay $15 more collectively per hour than they paid in 2016. Those employees work a collective 350 hours per week, for 52 weeks annually, meaning an employer in this situation saw their labor costs increase by $273,000 in 2017 (excluding increases in payroll taxes) just to retain 2016 productivity among the 10 workers. To continue employing these workers under the same workload in 2018 requires an additional $182,000 increase in labor costs, with equivalent increases in 2019 and 2020 as the minimum wage rises to $12/hr. By 2020, the small local grocer will pay $819,000 in additional labor costs (excluding taxes) just to retain their minimum wage workers, whose wages will then be indexed to inflation forever.

Unfortunately, Question 4 in 2016 disregards the underlying basis for a wage: Skills. As noted by the Department of Labor, “skill is the proxy for the value of a wage.” Businesses set wages based on the requisite knowledge and skills to perform a job. Question 4 has forced Maine employers to pay their workers more than their value in a fair market.

When wages rise artificially due to an increase in the minimum wage, payroll costs on businesses increase without compensating growth in productivity or sales. With a majority of businesses operating on razor-thin profit margins, Maine’s minimum wage increase gives small businesses no choice but to reduce their operations, lay off workers, transition to automation, or relocate to another state. When minimum wage hikes drive businesses to reduce costs, the first victims are low-wage, low-skill workers.

This is exactly what took place in Seattle after local voters enacted an incremental raise of the city’s minimum wage, a scheme similar to what Maine voters approved in 2016.

Last year, researchers at the University of Washington used detailed employment data given to them by their state government to study the economic impact of Seattle’s minimum wage increase. Their findings contradicted the talking points of local officials and other research conducted at the University of California Berkeley. A Forbes contributor named Michael Saltsman later found the Seattle Mayor’s Office coordinated with Berkeley researchers to omit the University of Washington’s findings from the Berkeley report and to downplay the harmful economic impacts of the minimum wage increase to save face with local voters.

The University of Washington’s study concluded that when Seattle’s minimum wage increased to $13/hr in 2016, the city’s lowest-wage workers saw their hours decrease by 9 percent, leading to a net loss in earnings on average for minimum wage workers. Despite increases to the city’s minimum wage, minimum wage workers made $125 less per month ($1,500 less per year) than what they earned prior to the wage bump in 2016. It’s worth noting the wage hike grew more economically damaging as the city’s minimum wage closed in on $15/hr.

The University of Washington’s report solidifies that, regardless of how high the minimum wage is artificially raised (or by what increments it’s raised to), businesses will always do what is best for their bottom lines; especially when local ballot initiatives command the free market rather than natural forces. If that means cutting hours, laying off workers, or replacing people with computers, businesses will do what it takes to stay in business.

Last week, Maine’s Joint Standing Committee on Labor, Commerce, Research, and Economic Development Committee held public hearing for LD 1757, a bill that would ease the burden for small business owners. It would scale back the overall wage increase to $11/hr, helping small businesses retain their employees. It establishes a youth training wage to protect opportunities for young workers entering the job market. It also removes the requirement to index the minimum wage to the CPI from 2020 onward, which would eliminate the uncertainty of projected labor costs for small businesses, which would be especially helpful for full-service restaurants (the tip credit is still tied to CPI from the 2016 referendum).

Maine would be much better off without artificial increases to its minimum wage, however LD 1757 would still honor the will of the voters while making the referendum itself workable for employers.

About Jacob Posik

Jacob Posik, of Turner, is a policy analyst for the Maine Heritage Policy Center. He can be reached at jposik@mainepolicy.org.

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