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Thursday, November 29, 2012

State Minimum Wages

By Aaron S. Robertson

The following is the author's contribution to a group paper submitted on November 27, 2012 for a class assignment in an economics course. The author is currently pursuing a master of science in management degree from Cardinal Stritch University in Milwaukee. The group was assigned the task of arguing against a minimum wage, and the author, for his contribution, studied the effects of minimum wages set by individual states. 

Minimum Wage Laws Among Individual States in the U.S.

In addition to a minimum wage set at the federal level here in the United States, a number of individual states have chosen to enact their own minimum wage laws that exceed the federal level. Going even further, individual municipalities within states have set their own minimum wage laws. For purposes of this study, however, only minimum wage laws set at the state level will be examined. Currently, 18 states and the District of Columbia have minimum wage laws exceeding the current federal rate (U.S. Department of Labor, 2012).

At the beginning of 2012, a number of these states were scheduled to raise their minimum wages. Arizona, for example, increased its minimum wage to $7.65. Colorado went to $7.64, and also set a minimum of $4.62 for employees who receive tips. Washington State increased its minimum wage 37 cents at the beginning of 2012, to $9.04. Ohio has raised its minimum wage to $7.70, with employees who receive tips guaranteed $3.85. Ohio is unique, however, in that it keeps its minimum wage on par with the federal rate for employers that gross $283,000 or less per year. Employees aged 14 and 15 also receive the federal minimum of $7.25. Montana’s minimum rose to $7.65 at the beginning of 2012, an increase of 30 cents. Finally, Florida’s minimum wage increased to $7.67, with all employees in the state who are otherwise covered by the federal rate. This reflects an increase of 36 cents from the previous year. Also in Florida, tipped employees must be paid $4.65 by employers who meet requirements under the Federal Labor Standards Act’s tip credit provision of $3.02, so that these tipped employees are, in the end, also receiving $7.67. Many of these states make annual adjustments to their minimum wages, based on cost-of-living increases (Payroll Manager’s Letter, 2012).

The concept of a minimum wage set at the individual state level only serves to deal more anomalies, and hence problems, to the labor market. While this team does not advocate for even a minimum wage at the federal level, at least with a federal minimum wage, the playing field, so to speak, is even across the country, if nothing more than theoretically. A zero sum game is in play. But the involvement of state governments in setting wages complicates things far more so. With such a broad spectrum of minimal wage guarantees across the United States now, employers will naturally tend to flock to those states that do not have their own minimum wage laws on the books that exceed the federal rate. It is simply in the best economic interests of employers to do so. And because of this economic reality, the states with minimum wages set above the federal level are far more prone to unemployment and sluggish growth. This is not a new phenomenon. Research conducted by Campbell & Campbell (1969) found that:
…from 1950 to 1965, the average rate of unemployment in the major labor market areas with state minimum wage laws was higher than in areas without such laws on 78 out of 95 bi-monthly reporting dates and the same on four reporting dates. The average rates of unemployment shown are weighted by the size of the labor force in each major labor market area. For the entire period from 1950 to 1965, the rate of unemployment in areas with minimum wage laws was on the average approximately 0.6 percentage points higher than in areas without such laws, and the average ratio of unemployment in areas with minimum wage laws to that in areas without such laws was 113 percent (Campbell & Campbell, 1969, p. 324).
Proponents of state minimum wages, as with supporters of a federal minimum wage, argue that such a guarantee combats poverty, but the study by Campbell & Campbell (1969) on unemployment rates in relation to state minimum wages clearly demonstrates otherwise. Sowell (2007) puts the subject of minimum wages and unemployment this way:
By the simplest and most basic economics, a price artificially raised tends to cause more to be supplied and less to be demanded than when prices are left to be determined by supply and demand in a free market. The result is a surplus, whether the price that is set artificially high is that of farm produce or labor. Minimum wage laws are almost always discussed politically in terms of the benefits they confer on workers receiving those wages. Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they lose their jobs or fail to find jobs when they enter the labor force. Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount – and, if it is not, that worker is unlikely to be employed (Sowell, 2007, pp. 210-211). 
Furthermore, in building on the work of Neumark and Adams and Adams and Neumark in 2003 and 2005, respectively, Clain, in her research, found no evidence supporting the claim that state minimum wages reduce poverty (2008, p. 206).


Campbell, C. D., & Campbell, R. G. (1969). State minimum wage laws as a cause of unemployment. Southern economic journal, 35(4), 232.

Clain, S. (2008). How living wage legislation affects U.S. poverty rates. Journal of labor research, 29(3), 205-218. doi:10.1007/s12122-007-9028-8

Sowell, T. (2007). Basic economics: A common sense guide to the economy (3rd ed.). New York: Basic Books.

States announce 2012 minimum wage amounts. (2011). Payroll Manager's Letter, 27(21), 3.

U.S. Department of Labor. (2012). Minimum wage laws in the states - January 1, 2012.

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