Economic Tidbits

Raising the Minimum Wage: Good or Bad?

Nebraskans will vote in November on whether to amend Nebraska law to raise the state’s minimum wage. Initiative measure 433 would phase-in a minimum wage increase from $9.00/hour to $15.00/hour over a 4-year period. Following the phase-in, the minimum wage would be adjusted annually for increases in the cost of living. Proponents argue Initiative 433 will benefit people employed as home care aides, school aids, waitstaff, and skilled assembly line workers. They also argue it will help thousands of children in Nebraska whose working parents make less than $15 per hour. Opponents contend that most minimum wage jobs are with small businesses and those owners cannot afford higher wages. They also contend a minimum wage increase would hit rural Nebraska harder where the cost of living is lower.

Economic theory suggests increasing the cost of labor will result in the loss of jobs. It’s simple supply and demand. Increase the price and less will be demanded, in this case jobs. In reality, labor markets are more complex. Economic studies of the impacts of minimum wage laws have shown mixed results. Some find fewer jobs or fewer hours worked resulting from a higher minimum wage while others have found job increases or no impact on jobs. Similarly, results are mixed regarding who pays for minimum wage increases. Some studies find the higher costs are passed on to consumers in the form of higher prices. Others suggest the costs are absorbed by employers. Competition in the labor market, the ability of firms to pass along cost increases, prevailing wages prior to the implementation of the minimum wage, the size of adjustment in the minimum wage, all play a role in shaping the impacts.

The Bureau of Labor Statistics (BLS) reports the average weekly wage in Nebraska was $1,144 in the fourth quarter of 2021. If one assumes a 40-hour workweek, this equates to $28.60/hour. A $15.00/hour wage equates to a weekly wage of $600. One Nebraska county had average weekly wages below $600, Loup County, with a weekly wage of $576 (Figure 3). Other counties near $600 were Hooker, ($643), Keya Paha ($652), Sherman ($676), and Arthur ($681). Occupations with statewide average hourly rates below $15.00/hour fall primarily in service sectors as proponents suggest. These include floral designers, EMTs, dietetic technicians, home health aides, orderlies, physical therapist aides, security guards, life guards, food preparatory and serving, to name a few. It appears these occupations would be most affected by an increase.

Figure 3. Average Weekly Wages by County, 4th Quarter 2021

Source: U.S. Bureau of Labor Statistics

The impacts of a minimum wage increase, if passed, will differ across the state dependent on various labor market conditions, the types of jobs in a region, and prevailing wages. The impacts are especially uncertain in today’s economy with the state’s low unemployment rate and country’s high inflation. One certainty is a hike in the minimum wage will create winners and losers, benefit some people and cost others. Research suggests it wouldn’t be the panacea proponents hope for, but it wouldn’t be the catastrophe opponents fear either.

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