How will the minimum wage hikes affect you?

The Uncertainty of Minimum Wage Hikes: How Will you be Impacted?

Timothy Lozier Federal Department of Labor, Latest News, Minimum Wage Leave a Comment

In previous articles, we’ve talked about the impact of state minimum wage rates, and those states that are steadily increasing the minimum wage to $15/hour. So far, 29 states have begun the process of raising the state minimum to $15, and most of these states have cited cost of living expenses as a primary means. It also has an impact on employers who cannot afford to retain as many employees due to the rising minimum wage. Now, the Congressional Budget Office (CBO) is exploring the impact of a potential federal minimum increase to $15/hr. What did they find, and how will workforce management be impacted?

 

Weighing the Numbers on Minimum Wage

The CBO didn’t just look at the ceiling of a $15/hr minimum wage, but weighed out three potential options — $10, $12, and $15 – and what the impact would be for each increase. The current Federal Minimum Wage has been set at $7.25/hr, and it has remained since 2009 – the longest period in the history of the country. In that 10 year period, there has been job growth, population growth, and inflation in a strong economy. Without a commensurate increase in minimum wage to fall in line with these other factors, there is a large portion who will drop below the poverty line.

 

This is what the CBO’s analysis looks to weigh out – what should the number be to maximize the positive impact on families in the US, while minimizing the negative impacts around unemployment rates.

 

A Game of Winners and Losers

For many, an increase in the minimum wage will boost income for families, raise many above the poverty line, and help the economy for a large portion. However, what the industry has seen is that as the minimum wage increases, there is a direct correlation on the impact of jobs for employers. With increases such as these, employers are finding it harder to pay their employees and will have to reduce their workforce in order to thrive. The CBO analysis take this into account and weighed the options. Here is a summary of these points:

Impacted workers from minimum wage increases

The graph above illustrates what the impact of various minimum wage increases would be on workers – source CBO

So, when you look at an increase of the Federal minimum wage to $15/hr, there will be over 17 million workers that will see an increase in their week earnings, but the tradeoff will be that an estimated 1.3 million workers will be jobless as a result of an inability to pay workers the new rates. This is a median estimate, too – the high end of this estimate saw a potential of 3.7 million jobs lost as a result of the change.

 

The $10 option has the least impact on joblessness, but a minimal increase on impacted workers, at only 1.5 million. So, this really is a game of numbers – what is the right number to set, while minimizing risk and maximizing the number of impacted workers?  (You can read the CBO’s full report here)

 

The Best Practices in Running a Payroll Management Process

What is the Impact on Businesses?

This isn’t an exact science – there is a degree of uncertainty, which the CBO acknowledges, on weighing minimum wage increases. There are multiple market factors over the next 8-10 years that throw a host of variable into the equation, and there is no way to determine how the economy will change in the long-term. One thing we do know, looking at how the State increases have shown:

  • Wage Increases Boost Workers Earnings: Workers will be paid more, leading to better income levels, more spending power, and a decline in workers below the poverty line
  • Wage increases Reduce Business Revenue: Business will have to either increase prices to offset wage increases, or reduce staff to compensate for these increases
  • The Jobless Rate will Increase: Direct correlation from Business revenue, you will see an increase in joblessness as companies try to stay profitable.
  • Potential Decrease in National Output: There may be reductions that will impact companies investing in new buildings, business ventures, equipment and technology

 

The 29 States that are already above the Federal minimum wage can serve as a benchmark for the larger discussion in the federal analysis. This is again a rule of numbers – what can the nation and the businesses that are impacted by workers bear in terms of staying profitable in the advent of an increase?

 

Workforce Management Solutions Can help through Smarter Operations

Many of the business that are already going through this shift at the State level are attempting to take steps to drive more streamlined operations to help minimize their costs, while not raising prices too dramatically. Leveraging workforce management solutions has helped in many ways to build a reduction in overtime rates, properly address payroll management processing, maintain compliance, and drive for better retention of workers. Technologies such as these are building efficiencies that can help to reduce some of the overhead costs, in order to help ease the transition as wages continue to rise.

Eliminate Uncertainty – Plan for A Change Now

Wherever you sit on the pay scale – if you’re a business that’s already above the Federal rate or at it – the need to understand the impact is critically important. The US has not raised the Federal minimum wage in 10 years, and there is no doubt that it is coming. Invest in ways to operate more efficiently, build out workforce management solutions that help you to minimize your expenses, so that when you have to increase pay rates, you can take any uncertainty out of the equation.

 

 

Minimum wage increase


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