Pooley: Raising The Minimum Wage Too Quickly Comes With Risk

Jul 28, 2017

Minimum wage workers hoping for a significant increase.
Credit Center for Research & Economic Opportunity (CREO)

Raising the minimum wage appeals to many in the workforce, but what are the risks of raising it too much, too soon?

Phyllis Pooley, director of special projects with the University of West Florida’s Office of Economic Development and Engagement, reviewed a recent study by the University of Washington on the subject and surveyed local labor market data. She discussed her observations with WUWF’s Sandra Averhart.

“The federal minimum wage is $7.25 an hour,” Pooley said. “Florida, I think as much as 10 years ago now, has adjusted its own minimum wage based on inflation. So the current minimum wage in Florida is $8.10 an hour.”

The minimum wage is the lowest legal amount that an employee can be paid for their work on an hourly basis. Recently, cities and states have begun to raise their minimum wages to much higher levels than what the federal law requires.

“Seattle, as a city, has its own separate minimum wage and had the first push by certain industry workers to raise the minimum wage to $15 an hour, which they feel is a much more livable wage than the current minimum wage,” Pooley said. “Seattle did vote to – over a period of time – increase its minimum wage.”

At the time of the vote, the city’s minimum wage was about $9.50 an hour. The first increase was to $11 an hour in 2015 and was raised to $13 an hour last year. The University of Washington has been collecting data as the raises occurred and recently issued a study that found that there may be problems with such a drastic change.

“The study found that hours were cut, some jobs were lost and that the average low-wage worker saw their monthly paycheck decrease by $125,” Pooley said.

According to Pooley, much of the issue could also be in the timing.

“The study’s authors also went on to suggest that that second adjustment may just have come too quickly for businesses to be able to adapt and cope with having what is for many businesses their No. 1 operating cost – salaries and wages – to go up in such a large amount,” she said.

A recent survey of the Pensacola area showed that the median wage – half the people in the area make more, and half make less – comes in at $15.38 an hour.

“This suggests that if the Pensacola minimum wage was required under federal minimum wage, that could affect half of all workers in Pensacola,” she said. “In reality, it’s going

to affect a lot more because anyone who’s making even a little more than that is going to see their fellow workers have a huge salary increase for no other reason than that someone mandated it. It won’t be because of increased productivity – won’t be because they’ve increased their skill set. It won’t be because there’s a higher demand for these workers and they’re having a hard time finding them.”

Pooley said workers in only about 9 percent of occupations earn on average more than $15 an hour.

Low-skilled workers aren’t the only ones who earn less than $15.38 an hour in the Pensacola area.

“Locally - substitute teachers, pharmacy technicians – there are a surprising number of occupations out there that do require more than a basic skill set that still do not make $15 an hour in our locality,” Pooley said.

Raising the minimum wage in Pensacola would have a major effect on the area’s economy.

“It would have to be done extremely slowly and quite possibly in a much more targeted and industry-specific way,” Pooley said. “I have not found a lot of discussion of one of the problems with a minimum wage is that it affects all industries equally, and if all industries were created equal, that might be fine.”

Pooley said if all industries could raise prices and absorb the cost, raising the minimum wage would work. But, that isn’t the case.

“Even within the same industry, there are massive differences,” she said. “It might be that one solution that people could live with – because there are very strong opinions on both sides of the issue – would be to make in a more strategic, targeted fashion and acknowledge that you can’t just change everything overnight, as much as you’d like to.”

The markets will adapt, Pooley said, but the Seattle study suggests that making the move too quickly brings complications. Cost of living is also something that needs to be considered.

“Fifteen dollars an hour gets you a lot more in this area than it might get you in New York City,” she said. “There are so many variables at play that it sounds nice, and there’s a certain fairness about it to say let’s just go do this. But, beware of unintended consequences.”

CREO staff writer Mike Ensley contributed to this report. He can be reached at kensley@uwf.edu.