James Sherk, of The Heritage Foundation, recently took a look at what impact a $15 federally-mandated minimum wage might have on employment levels in each of the 50 states. Unsurprisingly, the study concludes that the impact would be substantial with approximately 7mm jobs lost, or roughly 6% of current full-time jobs in this country. As we pointed out before, imposing artificial floors on wages really only serves to improve returns on capital investment by businesses resulting in permanent job losses and higher unemployment in the long-term (see “As Robots Replace Farm Workers, Why Payback Is A Bitch”). A point that Sherk confirms:
Companies hire workers when the additional earnings their labor creates exceeds the cost of employing them. Starting wages of $15.00 per hour mean full-time employees must create at least $38,700 a year in value for their employers (including wages, employer payroll taxes, and Obamacare-mandate penalties). Such a high hurdle would make it much harder for less-experienced and less-skilled workers to find full-time jobs. Many of these workers are not yet productive enough to create that much value for their employers and businesses will not hire them at a loss.
Consequently, many businesses might respond to a $15 mandate by eliminating positions, cutting hours, and looking for new ways to implement labor-saving technology. Some companies might have to face shutting down or leaving America entirely to cope with the additional expenses.
This process has already begun in California. Shortly after Los Angeles raised its city minimum wage to $15 per hour, American Apparel eliminated 500 clothing manufacturing jobs in the city. The Los Angeles Times reports the company planned to relocate those jobs within California. After California raised minimum starting wages statewide, however, American Apparel began examining options to move production outside California.
Overall, Sherk found that a $15 minimum wage would cover approximately one-third of the entire U.S. workforce and could result in 7mm job losses. Not surprisingly, states with the lowest cost of living would be hit the hardest by a massive minimum wage hike.
States with lower living costs would experience relatively greater job losses. For example, New Jersey and Georgia have similar total employment. However, Georgia would lose almost twice as many jobs to a $15 mandate (329,000) as New Jersey (170,000). This happens because a $15 mandate affects substantially more employees in Georgia (39.5 percent) than in New Jersey (26.1 percent).
Table 2 shows Texas the biggest loser—by far—from federally mandated $15-per-hour starting wages. At that rate, the federal minimum wage would cover almost two-fifths of wage and salary employees in the Lone Star State. This would cost over 900,000 FTE Texan jobs.
The next biggest loser is Florida. A $15-per-hour federal mandate would also cover 40 percent of Floridian employees, costing Florida roughly 600,000 FTE jobs.
North Carolina, Ohio, and Pennsylvania would all lose approximately 300,000 FTE jobs. Louisiana, Michigan, Missouri, Tennessee, and Virginia would each lose about 200,000 FTE jobs.
All told, $15 federal starting wages would cost 7 million jobs nationwide, above and beyond those jobs that state minimum-wage increases (such as New York’s) will eliminate.
If anything, we would suggest that this study seemingly underestimates the impact of a $15 minimum wage by specifically only focusing on the number of jobs below that $15 per hour level. We would suggest that a $15 per hour minimum wage would cause all people at all salaries levels throughout management to seek pay increases. After all, mid-level managers making say $16 per hour aren't going to be happy when the lowest paying jobs move from say $8 per hour to $15 while they maintain a static wage.
That said, one thing is for sure, a $15 federal minimum wage, once viewed as "fringe proposal," is starting to gain real traction:
In Congress, Senator Bernie Sanders (I–VT) has introduced the Pay Workers a Living Wage Act, which would raise the federal minimum wage from $7.25 per hour to $15.00 per hour over four years. Prominent Senators, including Assistant Minority Leader Dick Durbin (D–IL), have co-sponsored this bill. The Democratic Party has formally included a $15-per-hour minimum starting wage in its 2016 campaign platform. If the policy became law in 2017, the federal minimum wage would rise to $15 by 2021.
As we've pointed out previously, 1000's of businesses are already fleeing California due to onerous regulations like the recently passed $15 minimum wage (see "3 Simple Charts That Help Explain Why 9,000 Businesses Have Left California In Just 7 Years"). With an abundance of empirical evidence suggesting that massive hikes to minimum wage would result in substantial permanent job losses for the low-skilled laborers that politicians are attempting to "protect," one has to wonder whether these policies are born out of willful ignorance or something far more sinister.