Original post date: September 10, 2014
Article by: Matt Kelly
As Floridians nurse their Labor Day sunburns, it’s worth remembering the twentieth century labor movement’s legacies. Chief among them is the Fair Labor Standards Act of 1938, a federal law that established the minimum wage. From its original hourly level of $0.25, the federal minimum wage has risen to $7.25 today. In Florida, the minimum wage is $7.93 and determined by a cost of living formula. Recently, President Obama has called for an increase to $10.10. Despite mountains of research, the minimum wage’s effects on employment remain controversial. A paper from Texas A&M University revisits this long-standing debate. Its results are especially relevant to Florida’s workers.
The 2013 paper from Jeremy West and Jonathan Meer reassesses the statistical methods commonly used in labor economics. The authors contend the minimum wage’s effect will be most acute in job growth, rather than aggregate employment levels. This emphasis on growth makes some sense. A business may be loath to terminate workers already on their payrolls, but hiring fewer new employees is an easier way to adjust to higher labor costs. The authors ultimately find that increases in the minimum wage reduce job growth.
This negative effect is strongest in the retail and food service sectors, making the authors’ findings especially pertinent to Floridians. Florida’s housing market underperformed the national average during the recent recession, and the resulting shift of labor from construction to the service industry has made the minimum wage all the more impactful. Nationally, only about 1% of workers receive a minimum wage, but those who do are more likely to be young and less educated. The Sunshine State is second only to Texas in the number of workers earning the minimum wage, making our state particularly vulnerable to increases.
Proponents of the minimum wage often point out that theoretical models used by economists have ambiguous implications. Meer and West note that, “although it reduces demand for labor by raising the marginal cost of employing a new worker,” a higher minimum wage might incentivize workers to search for jobs. These countervailing forces will have differing effects in different communities, however. The effect of a minimum wage increase in Orlando would be very different from a city like Seattle, Washington, where it was just increased to $15 an hour. In states with large service sectors like Florida, increases in the minimum wage could be more detrimental than in areas where manufacturing or finance are primary industries
Controversy will continue to dog this issue, especially with President Obama’s calls for an increase to $10.10 an hour, equivalent to a full-time compensation of $20,000 a year. Gubernatorial candidate Charlie Crist has even made raising the minimum wage a part his campaign’s platform. However, Meer and West’s work suggests such an increase would mean fewer new jobs for Florida. The Congressional Budget Office’s estimates say 500,000 jobs nationwide could be lost if the minimum wage rose to $10.10. That may be a price Charlie Crist and President Obama are willing to pay, but Florida’s would-be workers could find it too costly.