Low-Wage Workers Likely to Suffer from Rhode Island Wage Hike

Low-Wage Workers Likely to Suffer from Rhode Island Wage Hike
July 5, 2012

Rhode Island Governor Lincoln Chafee (I) has signed a bill raising his state’s minimum wage to $7.75 an hour, 50 cents an hour more than the federal wage floor. The law takes effect January 1.

Representative David Bennett (D-Warwick), the bill’s sponsor in the Rhode Island House, called the measure “absolutely necessary to help the people at the bottom of the pay scale, who are doing vital jobs for our economy and are struggling to make ends meet."

The experience of similar minimum wage increases, however, suggests they might not be the best way to accomplish that goal. A large and long-standing body of economic research disputes the idea that higher minimum wages offer low-income workers and families any tangible benefits.

Does Not Reduce Poverty

One of the most comprehensive works on the subject, done by economists David Neumark and William Wascher’s in their 2008 book Minimum Wages, concludes increasing the minimum wage “neither helps low income families nor reduces poverty.” Furthermore, studies often show higher minimum wages hurt the very people they are trying to help by making low-earning workers’ jobs uneconomical.

As Russell Sykes of the Empire Center for New York State Policy told Budget & Tax News, “There’s a strong research basis that workers are less likely to be hired if you price them out of their skill set.”

He said localized wage legislation, like the Rhode Island law, can be particularly harmful. If a higher wage floor applies only in a small geographic area, employers may be encouraged to hire elsewhere. In tiny Rhode Island’s case, nearby New Hampshire has no local minimum wage law.

Effective January of this year the City of San Francisco raised the minimum wage there to $10.24 an hour. Doug and Polly White of the management consulting firm Whitestone Partners noted for Budget & Tax News, “In San Francisco, the law forces you to pay a 41 percent premium over what your competitors, who manufacture widgets elsewhere, pay. You won’t be able to compete. You’re left with two choices: move your production facilities outside of San Francisco, or shut your doors.”

Jobs Lost, Hours Cut

In 2004, citizens of Santa Fe, N.M., voted to approve a “living wage” ordinance, one of the first municipal laws of its kind in the country. Despite a then-booming New Mexico economy, when compared to data from elsewhere in the state where Santa Fe’s $8.50 an hour “living wage” does not apply, the law’s ill effects on employment become clear.

A 2005 study by the Employment Policy Institute showed the ordinance was responsible for a 3.2 percent increase in unemployment and 1.6 fewer hours of work a week for wage earning employees.

This economic suffering was almost entirely distributed among the least educated and skilled workers in Santa Fe, according to study author Aaron S. Yelowitz.

Ian Mason (ninthoption@gmail.com) writes from Chicago.

Internet Info

“Santa Fe’s Living Wage Ordinance and the Labor Market,” Aaron S. Yelowitz: http://news.heartland.org/policy-documents/santa-fes-living-wage-ordinance-and-labor-market