MINIMUM WAGE DEBATE: Plan spells disaster for Delaware businesses

Delaware’s Senate recently voted to raise the state minimum wage to $10.25, and the motion now heads to the House for approval. If passed, it’s unlikely the goal posts will remain there for long. The bill’s sponsor, Sen. Robert Marshall is leading a drive to raise the state minimum wage to $15 an hour–a more than an 80 percent increase over the current state wage floor — and the Wilmington City Council passed a resolution of support for the $15 proposal.

A $15 minimum wage may be good politics. But even left-of-center economists are nervous about it as a matter of policy.

A starting wage of $15 an hour translates to $30,000 a year, full-time job. Add in the cost of employer-paid payroll taxes and it adds up to an audacious demand for entry-level work, one designed to raise the bargaining stakes in the wage debate.

MS -headshot 2014 by .

Michael Saltsman

As one of the top organizers for the Service Employees International Union has admitted, this number was pulled out of thin air. In his words, “$10 was too low and $20 was too high, so we landed at $15.”

Still, a handful of cities have charged ahead with wage mandates at or near the $15 figure. The early results have been disastrous. In Oakland, San Francisco, and Seattle, a number of businesses have either closed or dramatically cut back on available jobs.

In Los Angeles, where the $15 requirement hasn’t even begun phasing in, businesses are already looking to move beyond the city borders. (Specific stories can be viewed at FacesOf15.com.)

The economic dynamics at play here are clear. Businesses with narrow profit margins (e.g. restaurants, small retailers, or child care providers) or organizations with no profit at all (e.g. nonprofits) can’t simply absorb an 80-plus percent increase in the minimum wage. In some cases, they’re able to raise prices and scale back staffing levels to offset the cost; in other cases, the only option is to close their doors or move if it’s a feasible option.

This is why even economists who’ve been supportive of a minimum wage in the range of $10 an hour are opposed to raising it to $15. This includes alumni of both the Clinton and Obama administrations, including University of Maryland economist Katharine Abraham and Georgetown University economist Harry Holzer.

These aren’t isolated anecdotes: A recent University of New Hampshire survey of 166 labor economists nationwide (60 percent of whom identified as Democrats) found that nearly three-quarters opposed a broad $15 mandate.

In Delaware, Sen. Marshall’s own preferred economists wouldn’t likely back his $15 plan. In a report released by a low-wage task force chaired by the senator, research from University of Massachusetts-Amherst economist Arin Dube was cited in support of the questionable proposition that a higher minimum wage won’t cause job loss. But a paper released in 2014, and authored by Dr. Dube, proposed a minimum wage of closer to $10 an hour for Delaware.

According to a methodology developed by the nonpartisan Congressional Budget Office, the damage in Delaware from $15 would be severe. At the $12 minimum wage level backed by Vice President Biden, the CBO methodology suggests that approximately 2,500 jobs would be lost in Delaware–jobs held mostly by less-skilled employees. At a $15 wage floor, this damage would only be compounded.

EDITOR’S NOTE: Michael Saltsman is research director at the Employment Policies Institute, which receives support from restaurants, foundations, and individuals. Mr. Saltsman is a former field economist at the Bureau of Labor Statistics.

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