Small businesses and their employees will suffer
The following op-ed by NFIB Maryland State Director Mike O’Halloran was published in MarylandReporter.com on Monday, February 27.
As the Maryland General Assembly considers increasing the state’s minimum wage to $15 an hour, the low wage workers those bills are intended to help may end up out of a job. The latest minimum wage research shows there is a tipping point where the resulting job losses are so significant, that people at the low end of the pay scale are hurt far more than they are helped. It’s incumbent upon lawmakers and the Governor to consider the unintended consequences of such a policy.
Seattle, an early adopter of a $15 minimum wage, released a study in 2017 after that city’s incremental increase to $13 per hour. It found nine months after that second of three wage bumps, about 5,000 low-wage jobs disappeared, the number of hours worked by low-wage workers dropped by 3.5 million hours, and their wages dropped by $6-million.
A study released in December on California’s minimum wage hikes over three decades found there was a measurable decrease in employment among affected employees, and that each 10-percent increase in minimum wage led to a nearly 5-percent reduction in employment in industries with a higher percentage of minimum wage employees.
And, a new 2018 report on why teen unemployment has continued to rise, by George Washington University’s Mercatus Center, shows increases in minimum wage were the main reason. The research determined “No evidence was found to suggest that higher minimum wages for teens lead to higher future earnings; if anything, the evidence points to the opposite effect.”
If the bill for a $15 minimum wage passes in Maryland, small business owners face greater costs than higher wages of employees who fall below the new minimum. To keep morale and productivity from dropping, they will likely have to raise the pay of workers in a range above that. There is also the 7.56% payroll tax an employer must pay for the added wages. Many small businesses operating on a thin profit margin may simply not be able to afford these added costs.
These significant costs for Maryland small businesses, combined with recent increases in labor costs from the mandated paid leave law, leave those employers in a difficult position. They may not be able to raise prices on goods or services if the marketplace doesn’t tolerate it. That leaves the elimination of jobs and reduced hours for lower level employees.
To determine how a $15 minimum wage will impact Maryland, NFIB used a regional economic modeling firm, REMI, which has performed policy impact studies for at least 28 states and many universities. The resulting NFIB Research Foundation report shows Maryland would see private sector employment reduced by 99,000 jobs over a decade, and real output reduced by over $61 billion. Most of the job losses take place in the small business sector.
When reviewing this legislation, it is critical that state lawmakers ensure that Maryland small businesses, their employees, and the state economy will continue to prosper by considering these unintended consequences.