Job Growth in States That Increased the Minimum Wage Doesn’t Tell the Whole Story

July 24, 2014

Advocates of a higher minimum wage have seized onto new data from the Department of Labor showing higher than average job growth in states that increased their minimum wage this year.   According to the DOL data, 12 of the 13 states that increased their minimum wages at the beginning of this year averaged slightly higher job growth (.85%) from January through June than the 37 states whose minimums did not increase (.61%).   Minimum wage supporters say this proves that not only does increasing the minimum wage not kill jobs, it actually spurs job growth.

Of course, just because the average job growth in states that increased their minimum wages just six months ago happened to outpace the average job growth rate of other states by .24% does not establish a cause-effect relationship.   Such a simplistic assessment does not take into consideration the myriad other factors that influence a state’s economy and employment, nor does it take into account the longer-term trend of job loss and growth in those states. 

For example, some of the states with high job growth and higher minimum wages this year experienced some of the greatest job losses during the Great Recession, and are finally beginning to rebound.  Arizona and Florida are two such examples; both states were amongst the hardest hit by the Recession, and now are regaining many of their lost jobs at a steady pace.  But neither state has managed to recoup all of their job losses.   As of July 2014, 18 states have recovered all the jobs they lost during the Recession; just four of them, Colorado, Montana, New York and Washington, increased the minimum wage in 2014.

But most every state is experiencing job growth as they move toward their pre-Recession employment levels.  Job growth has been a national phenomenon during the first six months of 2014, averaging 272,000 new jobs per month over the past three months, and exceeding 200,000 per month over the past five months.   

So let’s take a closer look at the 12 states that together enjoyed a higher average job growth rate after increasing their minimum wage this year. 

Of the 13 states whose minimums increased six months ago, nine do so automatically every year according to inflation.  Those states are Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington.

The other four states increased their minimums via legislative mandate this year.  Those states are Connecticut, New Jersey, New York and Rhode Island.   All of these states, except Vermont, have added jobs in the first six months of 2014.

The first point to consider is most states with the highest job growth rates during this period, such as North Dakota, Nevada, Utah, Texas, Delaware, Indiana, California, Oklahoma, Wisconsin, South Carolina and Tennessee, did not increase their minimum wages.   In fact, the state that leads the nation in job growth, North Dakota, does not even have a minimum wage policy, but the average entry wage is well above $14

The top performing states for job growth that did increase their minimum wage in 2014—Washington, Oregon, Florida and Colorado—do so every year according to inflation.  In these states that annually peg wage increases to inflation, the increases were less than 3%.   In Florida, the increase was just 14 cents, in Washington it was 13 cents, Oregon was 15 cents, and Colorado was 22 cents.   Studies show that such small to moderate increases in the minimum wage have little to no impact on employment; but the larger the increase, the greater the impact.  So the annually increasing minimum wage does not typically result in fewer jobs because the increase is not big enough to have a significant impact that warrants a reduction in jobs; instead employers find ways to offset the incrementally increasing wages. 

In the four states where the higher minimum wage was a new mandate, the increase was larger, but not huge.  Connecticut increased its minimum wage by 5%, while Rhode Island was just a 3% increase.  New York’s wage increased over 10%, while New Jersey’s increased by almost 14%.  Of the four, the state with the largest wage increase, New Jersey, has had the slowest job growth.  The other three have enjoyed mediocre job growth.

Studies have repeatedly concluded that while small minimum wage hikes may result in relatively few job losses, they ultimately come at a cost to the workers who keep their job and to the least skilled workers who can’t find a job.   When employers are faced with an increased labor cost, they invariably find ways to cut other labor costs.  In response to a moderately higher minimum wage, employers often cut back on fringe benefits or reduce hours.   They also increase productivity by hiring older applicants with job skills and a work history over young, unskilled teens with no work experience.

Another point to consider is that before these states increased their minimum wages this year, experts were forecasting exceptionally strong job growth in five of them, thanks to specific industries in those states.  Moody’s Analytics predicted robust job growth in 2014 in Arizona, Colorado, Florida, Oregon and Washington, thanks to steady home construction, booming tourism, and healthy high tech and aerospace industries.  These five states just happened to increase their minimum wage this year by a relatively small amount, as they do every year according to inflation.   '

The job growth in these five states is the result of the growing industries identified by Moody (most of which pay more than minimum wage); the fact their minimum wages increased is irrelevant.  These industries would have created jobs with or without the moderately increased minimum wage.  However, had the increases been significantly higher than moderate, research shows the outcome would likely have been different.   But a less than 3% increase in the minimum wage would not have a significant impact on these flourishing industries.

Were it not for the strong job growth performance enjoyed by these five states, the overall average performance of the other states that increased their minimum wage would be significantly lower.