The Buckeye Institute calculates effect in new analysis
Ohio policymakers should prioritize job growth as the best way to provide Ohioans with the opportunity to achieve prosperity. After all, the best program for reducing poverty is not a government program, but a job that can lead to upward mobility. However, hiking minimum wage is not a solution.
Unfortunately, a minimum wage increase is trending around Ohio. Former Gov. Ted Strickland favors raising the federal minimum wage from $7.25 to $12 an hour. Plus, a progressive group is working to put an “Ohio Fair Wage Amendment” on the November ballot. This legislation, if added to the state constitution, would raise minimum wage to $12 by 2021 and include automatic inflation adjustments thereafter.
Why not raise minimum wage?
The problem with raising minimum wage is simple yet profound: Nearly 200,000 Ohioans would lose jobs. The long-standing consensus among economists is that hiking the minimum wage destroys jobs, especially for low-income workers who are often young or without a college degree.
Supporters of minimum wage increases have made efforts to revise this consensus in recent years, but reality is a stubborn thing. Scholarship continues to overwhelmingly validate this economic trade-off: Forcing employers to raise wages above the market level causes layoffs, and the replacement of low-skilled workers with technology.
A 10% increase in the minimum wage leads to a half a percentage point reduction in the employment growth rate.
Recent research found that a 10% increase in the minimum wage leads to a half a percentage point reduction in the employment growth rate. Taking into consideration inflation and other dynamic negative employment impacts, hiking the minimum wage by 10% lowers overall employment by 0.7 percentage points after three years.
Raising Ohio’s current minimum wage from $8.10 to $12 would be almost a 50% increase, consequently lowering the state’s overall employment rate significantly.
Put simply, a $12 minimum wage will harm Ohio’s job market. Extrapolating from Ohio Department of Job and Family Services baseline data on projected job growth, if minimum wage increases, there will be nearly 200,000 fewer jobs by 2020. A similar phenomenon will likely be seen if the $12 minimum wage is added to state constitution, although the job loss may be more gradual due to the phased in structure of the amendment.
A recent study from the American Enterprise Institute (AEI) empirically shows that a minimum wage increase is more harmful in low-income counties than higher income counties.
Currently, Seattle is a test case. On April 1, 2015, Seattle ramped up their minimum wage to $11 an hour as part of a multi-year effort to raise minimum wage to $15 an hour. According to another policy brief from AEI, restaurant jobs in the Seattle area declined by 700 between January and September of 2015, a loss of slightly over one half of a percent. However, the rest of the state saw 5,800 new restaurant jobs, a growth of over 6.6%. Not surprisingly, higher wage jobs were not adversely impacted.
Ohio can ill-afford a job growth slow-down, having only partially climbed out of the economic depths of the last recession. The state hemorrhaged jobs from 2000 and 2010, losing 620,000 private sector jobs! More than any other state in the country, except “that state up north.”
Whether on a state or national level, increasing minimum wage to $12 is clearly bad policy. Those advocating for such change need to explain exactly how Ohio will be better off with fewer jobs.
— By Greg R. Lawson, policy analyst and Statehouse liaison, The Buckeye Institute