States With High Minimum Wages Are Doing Just Fine

(Bloomberg Opinion) -- When the U.S. House of Representatives earlier this month voted 231-199 (with all but six Democrats and only three Republicans on the winning side) to increase the federal minimum wage to $15 an hour gradually by 2025, the measure was reported as a long-sought victory for liberals. It was also dead on arrival in the Senate, where Republicans in the majority remain opposed to legislation they consider a job killer.

The politics of the minimum wage never seems to change much, with liberals presuming to speak on behalf of labor and conservatives on behalf of capital.

But what if sufficient context and perspective could show that the House measure, dubbed the “Raise the Wage Act” and inspired in 2012 by fast-food workers' Fight for $15 in New York City, could benefit capital and labor alike?

The federal minimum wage last went up in 2009, to $7.25 an hour.

States With High Minimum Wages Are Doing Just Fine

Since then, 29 states have approved minimum wages above the federal level. California, New York and Washington were among the first to start phasing in a $15 hourly rate, and their economies expanded with bigger boosts in personal income, job growth and consumer spending than the 21 states resisting anything above $7.25, according to data compiled by Bloomberg. Since 2015, the economies of the higher-minimum wage states are substantially more robust than the rest of the U.S.

States With High Minimum Wages Are Doing Just Fine

Even after the Congressional Budget Office said this month that the House initiative would lift 1.3 million Americans out of poverty and give as many as 27 million workers a higher standard of living, Republicans seized on the CBO's prediction that 1.3 million people, or 0.8% of the labor force, would be relegated to unemployment. Representative Virginia Foxx of North Carolina, who managed the opposition on the House floor, said the legislation is “socialist” and “not the American way.” More temperate authorities, including my Bloomberg Opinion colleague Karl W. Smith, said that the CBO calculation “ignores the potential to limit opportunities for the most marginalized workers” and that “virtually all economists” agree “that larger increases in the minimum wage are more likely to result in reduced employment.”

Recent history has been more encouraging. Among the 10 states with the fastest-growing rates of employment since 2015, only three are in the low-minimum-wage group: Utah, Idaho and South Carolina. States with higher minimum wages are adding jobs at a greater pace relative to their lower-minimum-wage counterparts. That's reflected in the previous five-year period, when half of the top 10 were the states with the lowest minimum wages, according to data compiled by Bloomberg.

Since 2015, six of the 10 states with the slowest employment growth were in the low-minimum-wage group: North Carolina, Wyoming, Louisiana, Oklahoma, Kansas and Iowa. During the previous five-year period, only three of the 10 slowest-growing states were on the low-wage list. The dichotomy reflects the trend of low-minimum-wage states suffering from a shrinking job market relative to states with higher minimum wages, according to data compiled by Bloomberg.

None of this proves that raising the minimum wage creates wealth, or even that opponents are wrong to fret about potential drawbacks. It does suggest, though, that states with strong economies won’t see ill effects powerful enough to counteract the benefits. Only three of the 10 states where personal income is growing the fastest are in the low-minimum-wage cohort: Idaho, Utah and South Carolina. These states, which also show up among the 10 fastest-growing states for jobs since 2015, have the advantage of hosting multinational corporate employers such as Boeing Co., Goldman Sachs Group Inc. and Micron Technology Inc. with globally favorable compensation and benefits that far exceed anybody’s minimum wage.

From 2009 through 2014, six of the top-10 performers in personal income were from the lowest minimum-wage states, according to data compiled by Bloomberg. Since 2015, by contrast, seven of the 10 slowest-income growers are states with the lowest minimum wages: North Dakota, Oklahoma, Wyoming, Louisiana, Kansas, Mississippi and Iowa. States with low minimum wages have tended in recent years to underperform their higher minimum wage counterparts, according to data compiled by Bloomberg.

When California enacted its $15 minimum wage three years ago, critics predicted that the new law would increase unemployment and punish retailers and restaurants. Instead, the largest state, with almost 40 million people, reported record-low unemployment of 4.2% and the biggest increase in personal income of any state over the past five years. The state’s accommodation and food services industry is especially buoyant, according to data compiled by Bloomberg.

Among the 10 states that saw the most growth the past five years for accommodation and food service companies, eight are states with higher minimum wages, led by California, Colorado, Massachusetts and New York, according to data compiled by Bloomberg. Retailing businesses in the same high-minimum-wage states enjoyed robust growth since 2015, with Washington showing the biggest gain of $12.7 billion, followed by California's $12.4 billion, Bloomberg data show.

Four years ago, Dave Regan, president of a union of 85,000 California hospital workers, told readers of USA Today that opponents of the $15 minimum wage “ignore the fact that raising the wage strengthens local economies by helping workers and their families climb the economic ladder.” Higher minimum wages, he said, “put more money into workers' pockets, money they spend at local businesses that in turn helps those businesses grow and create more jobs.”

Maybe he has the cause and effect right; maybe he doesn’t. That’s a good question for economists to ask. While we wait for their answers, let’s agree that rising minimum wages and improving economic performance can surely go hand-in-hand.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Matthew A. Winkler is a Bloomberg Opinion columnist. He is the editor-in-chief emeritus of Bloomberg News.

©2019 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.