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by

Stephen S. Fullei, PhB
Bwight Schai Faculty Chaii anu 0niveisity Piofessoi
Biiectoi, Centei foi Regional Analysis
ueoige Nason 0niveisity
Ailington, viiginia

with

Paikei Beusole
Associate Economist

anu

Scott Nystiom
Senioi Economic Associate
Regional Economic Nouels, Inc.
Washington, BC





Piepaieu foi


The Naiylanu Founuation foi Reseaich & Economic Euucation
Annapolis, Naiylanu







}anuaiy 2u14
1
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+0 *"# 2(567(08 9)+0+&6

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Raising the minimum wage iate has gaineu populaiity at the local anu state level
ovei the past yeai with the effective houily wage iate iising in 1S states on }anuaiy
1, 2u14. The Piesiuent calleu foi a highei minimum wage iate in his State of the
0nion message last yeai anu iecently has been speaking in suppoit of an inciease in
the minimum houily wage to $1u.1u. The Bistiict of Columbia, anu Piince ueoige's
anu Nontgomeiy Counties in Naiylanu each iaiseu its minimum wage iate to
$11.Su (ovei seveial yeais) at the enu of 2u1S. These incieases in minimum wages
have been laigely pieuicateu on issues ielating to incieasing poveity oi a giowing
income gap between iich anu pooi, oi just because it is the "iight thing to uo" oi "we
can affoiu it" without actually unueistanuing what the economies of highei
minimum wages aie oi who will actually benefit. This iepoit piesents the economic
consequences of iaising the minimum wage iate in the State of Naiylanu fiom $7.2S,
the cuiient national iate, to $9.uu, to $1u.uu anu to $12.uu.

Who aie the State's minimum wage woikeis. Theie weie 1,S29,486 houily woikeis
in the State of Naiylanu in 2u12 accounting foi 44.6 peicent of the state's
employment base (excluuing self-employeu woikeis). In 2u12, it is estimateu that
66,118 oi S.u peicent of these houily woikeis weie paiu $7.2S pei houi oi less. 0f
these woikeis, SS.4 peicent weie 16 to 19 yeai of age, suggesting that most of them
weie stuuents anu woiking pait time. Twenty-foui peicent (24.4%) of these wage
eaineis weie in the 2u-24 yeai olu age cohoit, an age gioup incluuing laige
numbeis of woikeis also likely to be still in school anu pait-time woikeis.
Combineu, these two age cohoits iepiesenteu 6u peicent of the woikeis cuiiently
paiu the minimum age in Naiylanu oi less.

At highei wage iates, this concentiation of youngei woikeis at the minimum wage
thiesholus continues. Woikeis unuei the age of 2S yeais olu woulu account foi S8.S
peicent of the houily woikeis benefiting fiom an inciease in the minimum wage
base fiom $7.2S to $9.uu anu woikeis unuei the age of 2S yeais olu woulu account
foi 4S.4 peicent of the woikeis in the $9.uu to $1u.uu inciement. Age of the woikei
cleaily impacts houily wage iates as a woikei's age coiielates with pait-timefull-
time employment status, euucational attainment anu skills level, inuustiy oi sectoi
of employment, anu status in a householu.

Theie is a geneial consensus in the ieseaich liteiatuie at the national level that
iaising the minimum wage has economic consequences: it ieuuces employment
paiticulaily among low-skilleu woikeis; incieases wages of affecteu woikeis but at
the expense of low-wage woikeis losing theii jobs; has no net effect on low-income
families oi on ieuucing poveity iates; piouuces negative effects on skills anu school
completion iates; iaises piices paiticulaily foi goous anu seivices in ietail,
2
hospitality, constiuction anu health caie sectois; weakens the local economies'
competitive position in iegional maikets; anu, ovei the long teim, may lowei the
eainings of woikeis latei in theii woik life who weie the beneficiaiies of incieases
in minimum wage iates as teenagei woikeis.

The economic impacts of iaising the minimum wage iates at the national level as
iepoiteu in the iecent liteiatuie anu baseu on analyses of national anu inteinational
laboi maiket ieseaich weie confiimeu to be the outcomes of pioposals to iaise the
minimum wage iate in the State of Naiylanu. The thiee scenaiios weie analyzeu
($9.uu, $1u.uu anu $12.uu). This ieseaich founu that iaising the minimum wage in
Naiylanu woulu: (1) inciease the piice of consumei goous; (2) ieuuce employment
anu peisonal income; (S) weaken the state's competitive position ielative to
aujacent states having lowei laboi costs; (4) slow the giowth of gioss state piouuct;
anu (S) slow population giowth anu weaken ieal estate values.

Specifically, iaising the minimum wage in Naiylanu fiom $7.2S pei houi to $9.uu,
$1u.uu oi $12.uu beginning in 2u14 woulu iesult in a loss of 9,S14, 11,Su2, oi
16,S87 jobs, iespectively anu geneiate losses in ieal peisonal income totaling $6Su
million, $76u million anu $1.u7 billion, iespectively by 2u2u. This loss of jobs anu
peisonal income will be ieflecteu in slowei economic giowth costing the State's
uioss State piouuct between $684 million anu $1.2 billion by 2u2u foi a minimum
wage inciease ianging between $9.uu anu $12.uu.

This loss of competitive auvantage will ieuuce expoits to economies having lowei
laboi costs. Bighei laboi costs may also inciease in-commuting of laboi fiom
aujacent lowei-wage states with the iesultant loss of these eainings fiom the
Naiylanu's economy as well fiom its tax base. Bighei consumei costs foi goous anu
seivices solu within the State of Naiylanu may also iesult in losses of consumei
sales to aujacent states as Naiylanu iesiuents seek lowei piices fiom beyonu the
state's economy.

These impacts will affect the bioau base of the Naiylanu economy anu the state's
iesiuents with seveial sectois uispiopoitionally expeiiencing these negative effects.
The hospitality sectoi, paiticulaily foou seivices, appeais to be the most vulneiable
to this loss of competitive auvantage to aujacent states uue to highei laboi costs.
Retail tiaue anu consumei seivices also woulu be significantly impacteu.

While theie may be stiong public appeal to iaising the minimum wage, this appioval
is not baseu on an unueistanuing of the economic effects of highei minimum wage
iates anu that these incieaseu costs woulu impact the geneial public.
0nueistanuing the associateu economic costs iesulting fiom legislatively iaising
minimum wage iates in an open maiket economy is essential to achieving a policy
outcome that is in the inteiest of the state's businesses anu citizens as they will be
the ones who will have to absoib the costs of iaising the minimum wage iates of the
state's houily woikeis.
S
!"# %&'()* +, -(./.01 *"# 2.0.&3& 4(1#
+0 *"# 2(567(08 9)+0+&6

Intiouuction

The uebate conceining iaising the minimum wage fiom its cuiient national iate of
$7.2S pei houi to a iange of highei houily levels has gaineu momentum this yeai. At
the national level, the Piesiuent has calleu foi an inciease in the minimum wage to
$1u.1u by 2u1S with futuie incieases beyonu that level tieu to changes in the cost of
living; that is, inuexing the minimum wage iate. Nineteen states alieauy have
minimum wage iates that exceeu the national iate; thiiteen states iaiseu theii
minimum wage iate as of }anuaiy 1, 2u14. Nontgomeiy County anu Piince ueoige's
County iecently auopteu houily iates that inciease to $11.Su pei houi by 2u17. Anu
in late Becembei, the Bistiict of Columbia followeu along with Nontgomeiy anu
Piince ueoige's County's anu iaiseu its alieauy highei minimum wage iate of $9.uu
to $11.Su by 2u16.

In a "no consequences" phiaseu question incluueu in its Becembei 18, 2u1S the
Washington PostABC News Poll founu that 66 peicent of the 0.S. population
appioveu of a highei minimum wage. It appeais cleai that iaising the minimum
wage has wiuespieau public suppoit although theie has been the absence of any
infoimeu uebate. Such a uebate must incluue the economic costs anu benefits of
iaising the minimum wage. These must be iuentifieu anu measuieu to fully
unueistanu who benefits fiom such a policy change anu who is haimeu. Knowing
the magnituues of effects anu how these will impact the economy may also pioviue
the basis foi mitigating oi minimizing the negative impacts of incieasing the
minimum wage iate.

The analyses iepoiteu in this papei aie uesigneu to: (1) iuentify which woikeis in
the State of Naiylanu aie cuiiently subject to the minimum wage anu how many
auuitional woikeis woulu benefit fiom iaising the State's minimum wage fiom
$7.2S pei houi to $9.uu, $1u.uu anu $12.uu; (2) to calculate the economic effects of
incieasing the minimum wage in Naiylanu on the state's economyits employment
base by sectoi of impact, consumei piices, anu its gioss state piouuct; anu (S) to
measuie othei collateial impacts that iaising the minimum wage in Naiylanu may
have ovei a peiiou extenuing beyonu the uates the minimum wage inciease
becomes effective. The economic impacts iuentifieu heie extenu to the state's
economy anu its iesiuents as consumeis anu paiticipants in the state's woikfoice
anu theiefoie shoulu be consiueieu along with the benefits that woulu acciue to the
specific woikeis affecteu by any inciease in the minimum wage.

What the Cuiient Reseaich Concluues

Nuch has been wiitten about the impacts of iaising the minimum wage at the
national level. Baviu Neumaik anu William L. Waschei in Ninimum Wages (NIT
4
Piess, 2uu8, 2u1u) pioviue an excellent ieview of the histoiy anu ieseaich into the
effects of minimum wages on employment, wages anu wage uistiibution, skills anu
school completion, piices, anu piofits. Theii ieview of the liteiatuie anu theii own
ieseaich anu analyses iesulteu in foui piincipal conclusions. Quoting fiom page 6 of
theii book:

1. minimum wages ieuuce employment oppoitunities foi less-skilleu woikeis,
especially those who aie most uiiectly affecteu by the minimum wage;

2. because employment anu houis uecline among those whose wages aie most
affecteu by minimum wage incieases, a highei minimum wage tenus to
ieuuce iathei than to inciease the eainings of the lowei-skills inuiviuuals;

S. minimum wages uo not, on net, ieuuce poveity oi otheiwise help low-
income families, but piimaiily ieuistiibute income among low-income
families anu may inciease poveity; anu

4. minimum wages appeai to have auveise longei-teim effects on wages anu
eainings, in pait because they hinuei the acquisition of human capital.

Neumaik anu Waschei founu agieement in the ieseaich iegaiuing the effects of
iaising the minimum wage on employment. ".the pieponueiance of eviuence
suppoits the view that minimum wages ieuuce the employment of low-wage
woikeis." (p. 1u4). The ieseaich founu that in the shoit-teim theie weie eithei zeio
oi positive effects of the minimum wage on low-skilleu woikeis but longei teim the
finuings weie statistically significant showing negative employment effects fiom
minimum wage incieases. Regaiuing the income effects on low-income families,
Neumaik anu Waschei founu "an inciease in the minimum wage laigely iesults in a
ieuistiibution of income among low-income families, with some gaining as a iesult
of the highei minimum wage anu othei losing as a iesult of uiminisheu employment
oppoitunities oi ieuuceu houis." (p. 189).

With S1 peicent of minimum wage woikeis in the 0.S. unuei the age of 2S anu
almost one-thiiu of these woikeis in the 16-19 age cohoit, it is likely that many of
these youngei minimum wage woikeis aie pait-time woikeis anu still in school.
This concentiation of youngei woikeis in jobs likely to be impacteu by the incieases
to the minimum wage iaises conceins iegaiuing what highei wages woulu uo to
high school completion iates anu the long-iun effects of these highei wage iates at
youngei ages on the subsequent wages anu eainings of these woikeis latei on as
auults. The ieseaich ciitiqueu by Neumaik anu Waschei founu theie is some
eviuence that highei minimum wages iates ieuuce high school oi technical tiaining
completion iates; that theie is a negative skills effect. Recent ieseaich focusing on
wages iates anu eainings of woikeis in theii late twenties who as teenageis hau
been exposeu to highei minimum wage iates founu them to have lowei eainings as
well as ieuuceu skills acquisition (p. 22S).

S
Regaiuing the impact of a highei minimum wage iate on piices anu piofits, the
ieseaich concluues that the highei wage iates uo inciease the piices of goous anu
seivices piouuceu with lowei wage laboi anu that highei piices will have
inflationaiy impacts when these wage incieases aie geogiaphically confineu. While,
foi a national minimum wage inciease the competitive effect is small
(inteinationally it might be measuieu), at the local oi state level wheie piicing
uiffeiences uefine maiket bounuaiies theie aie likely to be impacts on piice anu
investment uecisions anu these can be measuieu anu moueleu.

A iecent iepoit authoieu by }ames Sheik, entitleu "Who Eains the Ninimum Wage.
Subuiban Teenageis, Not Single Paients," (Naich 2u1S) focuseu on the teenage
cohoit, the 16-19 yeai olus. Be makes the case that the piimaiy beneficiaiies of
incieasing the minimum wage aie woikeis who aie only tempoiaiily associateu
with the woikfoice anu not heaus of householus anu that the expectation that
incieasing the minimum wage woulu have any impact on ieuucing the giowing
householu income gap in the 0.S. oi ieuucing poveity is misplaceu.

Sheik lists the chaiacteiistics of teenageis anu young auults who eain the minimum
wage (oi less) as follows: 79 peicent woik pait-time; 62 peicent aie eniolleu in
school uuiing non-summei months; theii aveiage family income is $6S,9uu pei
yeai; only 22 peicent live at oi below the poveity line; anu most have not finisheu
theii euucation (one-thiiu have not yet finisheu high school, almost 2S peicent have
only a high school uegiee, 4u peicent have taken college couises but not yet
giauuateu, anu only S peicent have giauuateu fiom college). 0f all of these youngei
houily wage woikeis, only five peicent weie maiiieu. These facts, as piesenteu by
Sheik, unueiscoie the coiielation between the age anu euucational anu skills
tiaining of woikeis anu theii peisonal income, both ueteiminants of life-long
eainings that cannot be uiiectly affecteu by manuateu wage iates.

The Reseaich Appioach

The economic impact analysis foi potential changes in the minimum wage levels
fiom $7.2S to $9.uu, to $1u.uu anu to $12.uu commencing in 2u14 on the State of
Naiylanu's economy utilizes a mouel constiucteu by RENIRENI PI+. PI+ is a
uynamic economic anu uemogiaphic simulation mouel consisting of twenty-thiee
sectois (2-uigit NAICS coues). The iegion of analysis is the State of Naiylanu. This
mouel builus fiom histoiic uata foi the State of Naiylanu that estimate its position
in the national anu inteinational economies as well as ieflect the emeiging stiuctuie
of employment anu ielative piouuctivity acioss the state's economy. Changes to the
mouel (e.g., changes in the cost of laboi) cieate a uisequilibiium in the state's
existing economic ielationships anu, as the economy moves to iegaining its geneial
equilibiium, the mouel measuies the iesultant changes that have taken place to ie-
establish its equilibiium (incieases oi uecieases in employment, changes in
peisonal consumption, changes in piices, changes in piouuctivity). As these changes
will also impact the state's woikfoice iequiiements, these changes in laboi uemanu
will affect the iate of the state's population giowth uue to incieases oi uecieases in
6
uomestic oi inteinational migiation to the state. These uynamics may impact ieal
estate values, maiket shaies anu othei measuies of economic vitality. These
uynamic inteiuepenuencies aie illustiateu in Figuie 1.

Figuie 1


Ninimum Wage Woikeis in Naiylanu

Who aie the woikeis in Naiylanu that woulu be affecteu by an inciease in the
minimum wage. The houily wage woikeis in Naiylanu who woulu be impacteu by
an inciease fiom the cuiient minimum of $7.2S pei houi anu to incieases at othei
inciements of possible futuie iaises have been estimateu fiom suivey uata
uevelopeu by the Buieau of Laboi Statistics of the 0.S. Bepaitment of Laboi, the
Cuiient Population Suivey of the 0.S. Census, the National Buieau of Economic
Reseaich, anu the Employment anu Payiolls Inuustiial Seiies foi the State of
Naiylanu.

Wage Rate Bistiibution Naiylanu Bouily Wage Woikeis

Theie weie 1,S29,486 houily woikeis in the State of Naiylanu in 2u12 accounting
foi 44.6 peicent of the state's employment base (excluuing self-employeu woikeis).
The uistiibution of these houily wage woikeis by wage iates is shown in Table 1
!"#$ &'() *+,- )#./
)0

!"#$% '()*+(*)$
7
along with theii inuustiy sectoi of employment. In 2u12, it is estimateu that 66,118
oi S.u peicent of the state's houily woikeis weie paiu $7.2S pei houi oi less. The
wage iange immeuiately above this minimum with an uppei value of $9.uu incluueu
169,2S4 woikeis anu accounteu foi 12.7 peicent of the state's houily woikeis.

Table 1

Woikeis by Wage Rate anu Inuustiy in the State of Naiylanu, 2u12
_________________________________________________________________________________

$7.26- $9.u1- $1u.u1-
Inuustiy $7.2S* $9.uu $1u.uu $12.uu $12.uu+
_________________________________________________________________________________

Bospitality 2u,u27 SS,149 17,9SS 2u,u27 S1,1u4
Retail Tiaue 1S,2SS SS,S17 2S,62u 24,927 79,629
0thei Seivices 6,S78 9,866 7,89S 11,182 29,6uu
Public Aum. 1,9u4 2,SS8 2,SS8 6,98u 1u2,8uS
Nanufactuiing S,849 S,2u8 S,774 7,uS7 S1,96S
Infoimation Seiv. 2,6uS - 1,Su2 1,Su2 18,224
Euucation Seivices S,184 7,777 S,8S2 6,48u S4,4SS
Enteitainment 2,u9u 6,969 2,u9u S,484 8,S61
Bealth & Social Sei. 2,u1u 14,741 18,762 2S,462 14u,712
P & BS** 6SS S,798 S,798 S,u64 71,SSS
Wholesale Tiaue 6u4 1,2u8 1,2u8 2,416 1S,7uS
Tianspoitation 1,Su7 S,268 4,S7S 2,614 S7,2SS
Constiuction 628 S,u2S 6,9u6 6,279 8S,Su4
Aumin Suppoit S,466 18,718 7,626 6,2S9 S8,129
Real Estate - 1,964 1,S1u 2,619 16,S69
Agiicultuie - 2,S8S 1,S89 1,S61 1,S89
Finance anu Ins. - 1,S27 2,6S4 S,S18 26,S42
0tilities - - 6S1 - 7,S76
Totals 66,118 169,2S4 118,u64 141,u1S 8SS,uS7
________________________________________________________________________________
Souice: estimateu fiom public uata, uN0 Centei foi Regional Analysis
*iepoiteu as equal to oi below $7.2S. **piofessional & business seivices
Note: uue to the small of some sectois, the suivey uata uo not fully uis-
Aggiegate theii wage uistiibutions; in those cases the woikeis in
Naiylanu have been uistiibuteu accoiuing to the national wage piofile.

The next two houily categoiies shown in Table 1, $9 to $1u anu $1u to $12, incluueu
118,u64 woikeis anu 141,u1S woikeis iespectively anu accounteu foi 8.9 peicent
anu 1u.6 peicent iespectively of the state's houily woikeis. An inciease of the
cuiient minimum wage fiom $7.2S to $9.uu woulu affect a total of 2SS,S72 woikeis
uiiectly oi 17.7 peicent of the state's houily woikeis. An inciease of the minimum
wage to $1u.uu pei houi woulu affect a total of SSS,4S6 woikeis incluuing those at
8
all houily iates cuiiently less than $1u.uu anu account foi 26.6 peicent of the state's
houily woikeis.

Raising the minimum wage to $12.uu pei houi woulu auu anothei 141,u1S eligible
woikeis to the numbei of woikeis coveieu by the minimum wage biinging the total
to 494,449 oi S7.2 peicent of the state's cuiient houily woikeis. These houily
woikeis, whose cuiient houily wage is $12.uu pei houi oi less, account foi 16.6
peicent of all jobs in the state (payioll plus houily but excluuing self-employment).

Bemogiaphic Piofile of Ninimum Wage Woikeis

The uistiibution of houily woikeis in the State of Naiylanu by wage iates anu age
aie piesenteu in Table 2. 0f the 66,118 houily woikeis paiu at the national
minimum wage of $7.2S (oi less) in the State of Naiylanu, SS.4 peicent weie 16 to
19 yeai of age, suggesting that most of these woikeis weie stuuents anu woiking
pait time. Twenty-foui peicent (24.4%) of these wage eaineis weie in the 2u-24
yeai olu age cohoit, many also likely to be still in school anu pait-time woikeis.
Combineu, these two age cohoits iepiesenteu 6u peicent of the woikeis cuiiently
paiu the minimum age in Naiylanu oi less.

Table 2

Woikeis by Wage Rate anu Age Cohoit in the State of Naiylanu, 2u12
_________________________________________________________________________________

$7.26- $9.u1- $1u.u1-
Age Cohoit $7.2S* $9.uu $1u.uu $12.uu $12.uu+
_________________________________________________________________________________

16-19 yeais 2S,4u6 48,u68 1S,9S2 6,2uS S,u1u
2u-24 yeais 16,1SS Su,6u6 S7,Su8 SS,112 48,4S2
2S-S4 yeais 1S,67u 26,u6S 2S,967 Su,6uu 187,u48
SS anu Noie 1u,9u9 44,S1S 7S,2u7 71,916 S94,S47
Total Wage Eaineis 66,118 169,2S4 118,u64 141,u1S 8SS,uS7
________________________________________________________________________________
Souices: CPS Annual Eainings File, 2u12; National Buieau of Economic
Reseaich; uN0 Centei foi Regional Analysis

At highei wage iates, this concentiation of youngei woikeis at the minimum wage
thiesholus continues. At $9.uu pei houi, woikeis unuei the age of 2S yeais olu
woulu account foi S8.S peicent of the houily woikeis benefiting fiom an inciease in
the minimum wage base fiom its cuiient level. Woikeis unuei the age of 2S yeais
olu woulu account foi 4S.4 peicent of the woikeis in the $9.uu to $1u.uu inciement.
At highei wages iates, wheie euucation anu skills tiaining anu yeais of expeiience
begin to impact the qualification foi high wage iates, the age piofile of the qualifying
woikeis incieases. Foi the age gioup of woikeis in the $1u.uu to $12.uu categoiy of
9
wages, 7u peicent woulu be ovei the age of 2S yeais but only 49 peicent weie ovei
the age of SS yeais. Age of the woikei cleaily impacts houily wage iates as a
woikei's age coiielates with pait-timefull-time employment status, euucational
attainment anu skills level, inuustiy oi sectoi of employment, anu status in a
householu (heau oi householu membei).

Inuustiy Piofile of Ninimum Wage Woikeis

Which types of businesses aie most affecteu by Ninimum Wages. The iesults of
these analyses aie piesenteu in Table 1. This tabulation of woikeis by wage level
anu inuustiy aie foi woikeis in the State of Naiylanu who aie classifieu as houily
wage eaineis. Excluueu fiom these totals aie salaiieu anu self-employeu woikeis.

The uistiibution of houily woikeis by wage iates vaiies wiuely acioss inuustiies
with ietail tiaue anu hospitality (accommouations anu foou seivices) accounting foi
SS.S peicent of the woikeis cuiiently being paiu the minimum wage oi less. At
highei levels foi the minimum wage, this pattein shifts slightly ieflecting the
uiffeient wage piofiles of these uiffeient inuustiies. The ielative effects of these
uiffeient uistiibutions of woikeis at uiffeient minimum wage thiesholus aie shown
in Figuie 2.

Which inuustiies employ houily woikeis anu at what iates these woikeis aie paiu
will impact how pioposeu changes in the cuiient minimum wage iate woulu impact
the state's economy. The uistiibution of woikeis acioss inuustiies eligible to ieceive
houily wage incieases unuei any of these pioposeu highei iates affects the piices of
goous anu seivices consumeu by the state's iesiuents anu businesses. In effect, these
wage incieases that aie benefits to theii iecipients aie tiansfeiieu to the costs of
piouuction in these iespective inuustiies to be boine by theii inteimeuiate anu final
consumeis.

To the extent that these consumeisinuiviuuals anu businessesaie pait of the
Naiylanu economy these piice changes will have a gieatei impact on the state's
economy than if these consumeis aie locateu in othei states oi countiies. Still, any
inciease in the cost of laboi that is not suppoiteu by changes in othei opeiating
costs oi maiket aujustment to compensate foi this change in wage cost will
potentially ieuuce the piouuct's oi seivice's competitive maiket positions in the
economies exteinal to the state. Beyonu the inuiviuual business, within the state's
economy these wage incieases will have piice anu laboi effects that will impact
Naiylanu's gioss state piouuct, its total peisonal income, anu its employment base
as well as having othei potential collateial effects. These will be iuentifieu anu
quantifieu in the following section.

Figuie 2 shows the estimateu annual inciease in wage costs by inuustiy iesulting
fiom an inciease in the minimum wage. Foi example, incieasing the minimum wage
to $1u.uu pei houi woulu inciease the wage cost foi accommouation anu foou
seivices in the state by appioximately $12S,uuu,uuu pei yeai.
1u
Figuie 2


The Economic Impacts of Raising the Ninimum Wage

An inciease in the existing minimum wage in Naiylanu fiom $7.2S to $9.uu, $1u.uu
oi $12.uu will inciease the eainings of the woikeis ieceiving the highei houily iates,
assuming that theie is no loss of houis being woikeu uue to the highei cost of the
laboi. With 169,2S9 houily woikeis cuiiently eaining between $7.2S anu $9.uu pei
houi plus the 66,118 woikeis at the cuiient minimum wage thiesholu, the new
peisonal eainings ieflecting a $1.7S pei houi inciease (oi foi woikeis in between
the minimum anu $9.uu this inciease woulu be $u.87S assuming an even
uistiibution of wages between $7.2S anu $9.uu) woulu total $26S,8uS.7S pei houi
woikeu. If all of these woikeis ieceive annual eainings baseu on 1,7Su houis (SS
houis pei week anu unpaiu vacation time of 8u houis pei yeai), iaising the
minimum wage to $9.uu woulu inciease total peisonal income in the state by $461.6
million foi these houily woikeis, assuming they all iemaineu in the woikfoice.

0sing the same assumptions, an inciease of the minimum wage to $1u.uu fiom a
minimum wage of $9.uu woulu yielu $S1S.2 million in new peisonal income (this $1
houily inciease woulu acciue to woikeis eaining less than $1u pei houi) anu an
inciease fiom a minimum wage of $1u to $12.uu fiom yielu $811 million in new
peisonal income foi all houily woikeis woiking in the State of Naiylanu (this is a
statewiue annual inciease).
!"#$ &'() *+,- )#./
)0

!"#$%&' )* +$,-'./*
"# "$#%###%### "&##%###%### "&$#%###%### "'##%###%### "'$#%###%###
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;/1/12
<96/9+,
=)1,-*>89)1
;31>?38->*/12
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5+36 E,-3-+ 314 5+1-36 314 F+3,/12
G*)?+,,/)136% H8/+19I8% 314 A+801/836 H+*:/8+,
;3132+D+1- )? =)DB31/+, 314 E1-+*B*/,+,
74D/1/,-*39:+ 314 @3,-+ ;3132+D+1- H+*:/8+,
E4>839)136 H+*:/8+,
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7*-,% E1-+*-3/1D+1-% 314 5+8*+39)1
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K-0+* H+*:/8+,% +L8+B- G>M6/8 74D/1/,-*39)1
"N
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11
It is cleai fiom these calculations that iaising the minimum wage woulu inciease the
peisonal income of the eligible woikeis woiking in the State of Naiylanu. Bowevei,
the economic benefits iealizeu by these houily wage eaineis will not be all captuieu
within the state's economy. What goous anu seivices this new income is spent on
anu wheie the supplieis of these goous anu seivices aie locateu will ueteimine the
local economic impact of this spenuing. The maiket basket of goous anu seivices
puichaseu by minimum wage woikeis anu theii householus is uispiopoitionally
spent on items that aie impoiteu into the state fiom othei locations theieby
minimizing the uiiect positive economic impact on the state's economy of these
highei houily wage iates that aie laigely being paiu foi by state iesiuents anu
businesses.

The oveiall economic impact of iaising the minimum wage on the Naiylanu
economy is captuieu in the iesulting change in the state's gioss state piouuct (uSP),
the value of goous anu seivices piouuceu in the state, as shown in Figuie S.

Figuie S



Bighei laboi costs, highei costs foi goous anu seivices solu to state iesiuents anu
businesses, a ueciease in competitive position iegionally anu nationally, with
iesultant uecieases in expoits, anu the iesulting uecline in business investment anu
!"#$ &'() *+,- )#./
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!""#$% '()
"#$% "#$& "#$' "#$( "#$) "#$* "#"#
+* ,+$*) ,+--- ,+%%" ,+&"* ,+&*( ,+'%( ,+')%
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12
loss of employment anu peisonal eainings combine to ieuuce the state's uSP. These
uSP losses aie net of the incieases in peisonal consumption expenuituies of houily
wage eaineis benefiting fiom incieases in the minimum wage as shown in Figuie S.
While the magnituues anu peicentages (see Figuie 4) of these uecieases aie small,
they confiim that iaising laboi costs will tianslate into highei costs foi the goous
anu seivices piouuceu anu consumeu in the state anu, with highei piices, the state's
expoits will be less competitive anu the consumption patteins of the state's
iesiuents will be negatively impacteu.

Figuie 4



Bighei minimum wages will iesult in the loss of employment in the state. An
inciease in wages means businesses aie ieceiving "less foi moie." When the
minimum wage is iaiseu by legislative action anu not linkeu to changes in
technology, skills levels oi some othei maiket factoi incluuing a ieuuction on the
size of woikfoice to uiiectly compensate foi the inciease in laboi costs, the iesult
will be a highei total wage bill to piouuceis. 0nless these highei costs can be passeu
on to consumeis, piouuceis will stiive to ieuuce theii total laboi costs by ieuucing
employment iathei than iaising piices oi accepting lowei piofits.

!"#$ &'() *+,- )#./
)0

!"#$"%& ()*%+"
"#$%&'
"#$%#'
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(#)% (#)* (#)& (#)+ (#), (#)- (#). (#(#
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1S
When the highei minimum houily wage iates aie moueleu foi the Naiylanu
economy, ieflecting the inuustiies employing the eligible houily woikeis, they show
uecieaseu uemanu foi laboi, as piesenteu in Figuie S. Foi example, a one-yeai
inciease in the minimum wage fiom $7.2S to $9.uu commencing in 2u14 woulu cost
the Naiylanu economy S,u91 jobs. A $1u minimum wage in 2u1S woulu iesult in
the state's employment base uecieasing by S,979 jobs. Some of these employment
uecieases woulu come fiom among the houily wage woikeis whose houily wages
weie incieaseu uue to the highei minimum wage iates while othei jobs might be
lost as a iesult of uecieaseu business income uue to lost expoit sales to consumeis
oi sales lost to businesses in othei states weie laboi costs aie lowei.

Figuie S



The uistiibution of these job losses by inuustiy on an aveiage annual basis foi the
2u14-2u22 peiiou, ieflecting an inciease in the minimum wage to $12, aie
piesenteu in Figuie 6. This figuie iuentifies the sectois that woulu expeiience the
gieatest impacts on an aveiage basis foi the 2u14-2u22 peiiou. 0f the aveiage
annual statewiue loss of jobs totaling 1u,146 jobs ovei the 2u14-2u22 peiiou, as a
iesult of having iaiseu its minimum wage to $12, two sectoisietail tiaue anu
accommouations anu foou seiviceswoulu account foi 4,S68 of these job losses oi
4S peicent. Bealth seivices anu constiuction woulu combine foi the loss of 2,SS8
!"#$ &'() *+,- )#./
)0

!"#$%&"'()
"#$% "#$& "#$' "#$( "#$) "#$* "#$+ "#"#
,+ # -%.#+$ -&.+%) -(.&#% -).'&+ -*.&%& -+.#'( -+.'$&
,$# # -%.)&' -'.+)+ -).)'$ -+.$%& -$#."#$ -$#.+'# -$$.'#"
,$" # -'.%%( -*.'%% -$$.#'+ -$%.#"+ -$&.'&% -$'.(#' -$(.%*)
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14
jobs oi 2S peicent. Togethei, these foui sectois woulu account foi 68 peicent of the
state's total job losses although all sectois woulu expeiience some impact.

Figuie 6



These job losses can also be aiiayeu by occupation as shown in Figuie 7. The
occupations most affecteu by this inciease of the state's minimum wage to $12
incluue sales anu ielateu seivices anu foou piepaiation anu seiving with piojecteu
job losses accounting foi moie than one-half (SS.7%) of the total aveiage annual
ueciease.

Foui othei occupationsbuiluing anu giounus, cleaning anu maintenance;
management, business anu financial seivices; healthcaie anu ielateu seivices; anu
constiuctioneach accounts of about 8 peicent of the losses (S4.S% combineu). As
shown in Figuie 7, all majoi occupational categoiies woulu expeiience some job
losses, although the piincipal losses aie in occupations chaiacteiizeu by below
aveiage wages anu salaiies.




!"#$ &'() *+,- )#./
)0

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6<)88J
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1S
Figuie 7



The economic consequences of a minimum wage inciease that iaises wages without
achieving compensating opeiating efficiencies oi incieases in piouuct oi seivice
quality commensuiate to the wage inciease has been shown to subtiact value fiom
the state's gioss state piouuct (uSP), its value of goous anu seivices piouuceu ovei a
yeai. These losses in uSP iesulting fiom houily wage incieases will make piouucts
anu seivices piouuceu anu uistiibuteu in Naiylanu moie expensive to the consumei
than similai piouucts anu seivices in othei states with a lowei minimum wage.

This piice effect can be measuieu as piesenteu in Figuie 8. Anu, even though it may
appeai to be a small piice inciease, it will ieuuce the state's competitive position
ielative to othei states while also incieasing piices to in-state consumeis. The
iesults of these uiffeiential piice levels will incluue: Naiylanu expoits will uecline,
Naiylanu iesiuents will ueciease theii in-state puichases eithei because basic
goous anu seivices cost moie so theii consumei buuget buys less anuoi they
inciease theii consumption of out-of-state goous anu seivices. Also, with ielatively
highei wages than in aujacent states, out-of-state iesiuents will be moie likely to
commute into the state on a uaily basis to benefit fiom these highei wage iates anu
ietuin to theii home states to spenu these eainings theieby ieuucing the potential
consumption benefit to the State of Naiylanu fiom having the highei minimum
wage iates.
!"#$ &'() *+,- )#./
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16
0ltimately, highei wage iates not suppoiteu by gains in opeiating efficiencies oi
piouuct oi seivice quality will iesult in lost sales anu lost jobs. These incieases in
the minimum wages, when uistiibuteu acioss 2SS,S72 houily wage eaineis at $9
pei houi, oi SSS,4S6 houily wage eaineis at $1u pei houi, oi 494,449 houily wage
eaineis at $12 pei houi, will geneiate impacts that will spieau thiough the state's
bioau economy, affecting eveiy sectoi anu occupation anu all consumeis within the
state. While the piice inciease may seem small, its impacts will be bioau-baseu anu
will potentially auveisely affect all of the state's S.9 million iesiuents anu its moie
than 2.2 million householus.

Figuie 8


When these geneial piice incieases aie uistiibuteu acioss the goous anu seivices
consumeu by the state's iesiuents, theii specific piice effects on these items can be
calculateu. The top ten consumei categoiiesthose expeiiencing the gieatest piice
incieasesaie piesenteu below in Table S. These consumei goous anu seivices aie
consistent with the employment losses by occupation anu sectoi piesenteu in
Figuies 6 anu 7. The puichase of meals anu beveiages anu accommouations aie at
the top of the piice effects list making the hospitality inuustiy the most vulneiable
to these piice incieases: its competitive position as an expoit inuustiy ielative to
neaiby states foi out-of-state visitoi spenuing anu as a local seiving sectoi
!"#$ &'() *+,- )#./
)0

!"#$!%&'( *+,(-
"#$% "#$& "#$' "#$( "#$) "#$* "#$+ "#"#
,+ #-##. #-$$. #-$#. #-#+. #-#+. #-#*. #-#*. #-#).
,$# #-##. #-$&. #-$". #-$$. #-$$. #-$#. #-#+. #-#+.
,$" #-##. #-$+. #-$). #-$(. #-$'. #-$&. #-$%. #-$".
#-##.
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17
iestauiants anu iecieationthat helps to ietain state consumei spenuing within
the state's economy, both uimensions of this inuustiy aie at iisk.

Table S



The loss of employment anu highei piices iepoiteu above will have oveilapping
impacts on the state's employment base that will ieuuce the state's total peisonal
income. Not only will peisonal eaining be lost with the loss of jobs, as uesciibeu
above, but peisonal income will uecline as lowei paying jobs aie substituteu foi
highei paying jobs. This wage compiession is a natuial phenomenon in the laboi
maiket as technology anu piouuction efficiencies have enableu employeis to shift
woik assignments to lowei skilleu oi less euucateu woikeis in an effoit to lowei
piouuction costs anu achieve competitive piicing. Raising the minimum wage woulu
ieinfoice this natuial economic tenuency.

Beyonu these souices of peisonal income uecieasesjob losses anu uownwaiu
shifting of woik to less skilleu anu euucateu woikeisas mentioneu above, highei
houily wages in Naiylanu will attiact non-iesiuent woikeis fiom othei states to
these jobs, woikeis who will ietuin home to spenu theii eainings anu pay theii
taxes. This loss of peisonal income fiom the state has multiple consequences. In
summaiy, a weakei, less competitive, highei piice economy will expeiience
uecieases in economic activity oveiall, as iepoiteu in Figuie 2, anu expeiience
!"#$ &'() *+,- )#./
)0

!"#$%&'()"# !+(,-".),$
!"#$ !"#& !"#' !"#( !"#) !"#* !"!"
+,-./0123 42051 063 7282-0921 "#$%& "#$'& "#%(& "#%)& "#%*& "#+,& "#+$&
:..;44;30<;61 "#$)& "#$"& "#%%& "#%-& "#+,& "#+$& "#++&
=-;,> /;,1?69 "#$)& "#$"& "#%%& "#%-& "#+,& "#+$& "#++&
@2472-1/?> .5,71A 1>;-B1 .26B2-1A >0-C1A
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+2-1;605 .0-2 063 .5;B/?69 12-8?.21 "#--& "#-*& "#',& "#'$& "#'+& "#')& "#'-&
D;442-.?05 063 8;.0<;605 1./;;51 "#'%& "#'+& "#')& "#'-& "#''& "#'*& "#'*&
E;426F1 063 9?-51F .5;B/?69 "#'(& "#'%& "#')& "#'-& "#''& "#'*& "#'"&
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I;> #" J;K (&LA :82-092 ./0692 ?6 .;61,42-
>-?.21A 7H .0B29;-HA M#! 4?6?4,4
18
ieuuctions in total peisonal income in spite of having iaiseu the peisonal eainings
of minimum wage woikeis. These net peisonal income losses aie piesenteu in
Figuie 9, ianging fiom $2u4 million in 2u14 foi an inciease in the minimum wage to
$9 to neaily $1.1 billion in lost peisonal income in 2u2u with a minimum wage level
of $12 compaieu to the cuiient baseline wage iate of $7.2S pei houi.

Figuie 9



Collateial Impacts

Changes to the minimum wage iate in Naiylanu can have impacts ovei a longei
peiiou that aie not immeuiate anu may be uifficult to measuie befoie the passage of
five oi ten yeais but aie impoitant to iecognize anu aie ieal. With highei laboi costs
ieuucing the state's economic competitiveness anu incieasing the piices of locally
pioviueu goous anu seivices to the iesiuents of the state, Naiylanu will become less
attiactive foi business investment anu to moveis consiueiing ielocation fiom othei
states to Naiylanu. Slowei economic giowth anu a weakei laboi maiket, combineu
with highei costs-of-living, will slow in-migiation to the state anu may acceleiate
out-migiation fiom the state. Combineu, these uynamics will ieuuce the population
giowth iate foi Naiylanu.

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"#$% "#$& "#$' "#$( "#$) "#$* "#"#
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19
Population foiecasts foi Naiylanu fiom the piesent to 2u2u, ieflecting the cuiient
minimum wage iate of $7.Su anu alteinative highei iates ($9.uu, $1u.uu anu $12.uu),
aie piesenteu in Figuie 1u. 0nuei cuiient wage iate conuitions, the state's
population is piojecteu to inciease S.S peicent oi by S1u,8S6 peisons between 2u1S
anu 2u2u. If the minimum wage was incieaseu to $9.uu pei houi, the foiecasteu
population giowth iate foi this peiiou woulu be S.u peicent foi an inciease of
294,919 net new iesiuents. The population cost of this change in the minimum wage
iate woulu be 1S,9S7 iesiuents. At a $1u.uu minimum wage iate ovei this same
peiiou, the state's population giowth iate woulu be 4.9S peicent with a gain of
291,617 net new iesiuents oi 19,2S9 fewei iesiuents than if the minimum wage iate
was helu steauy at $7.2S between 2u1S anu 2u2u. Anu, with a $12.uu minimum
wage iate, the foiecasteu population giowth foi Naiylanu between 2u1S anu 2u2u
woulu be 4.8 peicent, foi a gain of 28S,818 oi 27,uS8 fewei iesiuents than the
baseline foiecast ieflecting the cuiient minimum wage of $7.2S pei houi.

Figuie 1u


While these slowei population giowth iates may not appeai to be significant, they
uo confiim the connection between laboi costs anu the state's economic giowth iate
(uSP), changes in employment, peisonal income, anu consumei piices.

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Slowei population giowth will also impact the state's housing maiket. With slowei
population giowth anu a slowei giowing economy, the uemanu foi housing in the
state will be ieuuceu. Slowei giowth in housing uemanu will impact housing piices.
These impacts aie piesenteu in Figuie 11. These costs oi lowei values foi ieal estate
acceleiate ovei the analyses peiiou (2u14-2u2u) as the impacts of highei minimum
wages in Naiylanu ioll thiough the economy ieuucing job giowth, loweiing
peisonal income, iaising consumei piices anu slowing population giowth.

Figuie 11



Reseaich Conclusions

Raising the cost of laboi by incieasing the minimum wage will have economic
consequences unless these wage incieases aie compensateu foi by incieaseu
opeiational efficiencies anuoi incieaseu piouuct anu seivice quality that offset the
associateu piice inciease fiom highei laboi costs. 0theiwise these wage cost
incieases will iaise piices anuoi lowei the ietuins on capital.

Bighei laboi costs will inciease the piice of consumei goous, cost the economy
employment anu peisonal income, ieuuce the state's competitive position ielative
to aujacent states having lowei laboi costs, ieuuce gioss state piouuct, slow
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21
population giowth anu weaken ieal estate values. This loss of competitive
auvantage will ieuuce expoits. Bighei laboi costs may also inciease in-commuting
of laboi fiom lowei-wage states with the iesultant loss of these eainings fiom the
state's economy as well fiom its tax base. Bighei consumei costs foi goous anu
seivices solu within the State of Naiylanu may also iesult in losses of consumei
sales to aujacent states as Naiylanu iesiuents seek lowei piices fiom beyonu the
state's economy.

These impacts will affect the bioau base of the economy anu the state's iesiuents
anu seveial sectois will uispiopoitionally expeiience these negative effects. The
hospitality sectoi, paiticulaily foou seivices, woulu appeai to be the most
vulneiable to this loss of competitive auvantage with aujacent states uue to highei
laboi costs. Retail tiaue anu consumei seivices woulu also be uispiopoitionally
negatively impacteu.

While theie may be stiong public suppoit to iaising the minimum wage this
appioval is not baseu on a factual unueistanuing the iesulting economic effects of
highei wage iates anu what these costs woulu be to the geneial public.
0nueistanuing the associateu economic costs iesulting fiom legislatively iaising
wage iates in an open maiket economy is essential to achieving a policy outcome
that is in the inteiest of the state's businesses anu citizens as they will be the ones
who will have to absoib the costs of iaising the minimum wage iates of the state's
houily woikeis.




















22
Appenuices

Bouily Wage Woikeis By County












2S










24




2S








26








27







28






29