Raising minimum wages in Maine to $12 or $15 per hour could do more harm than good.

That’s the takeaway from researchers at the University of California who have developed a simple formula to assess the impact of raising minimum wages. The formula, if applied to Maine, shows potentially significant job losses if the pending efforts to raise minimum wages here are implemented. Maine’s current minimum wage is $7.50 per hour.

The university’s Institute for Research on Labor and Employment has found that if minimum wages are raised to no more than 60 percent of median wages, the net economic benefit is largely positive: Low-income workers get a substantial boost to their pay; they usually spend the extra money in the community, providing a local economic bump; and business owners can absorb the increase in costs without having to cut jobs.

That’s fine in states and cities that have high median wages, such as New York, Boston or San Francisco. But Maine’s wages lag well behind the earnings in those cities, as well as the national average. The median hourly wage in Maine of $16.29 is significantly below the national median of $24.99. The median wage for a full-time, full-year worker is somewhat better, coming in at $21.27 per hour in 2014, according to Census data.

And many counties in Maine have even lower median wages. The statewide figure is skewed higher by Sagadahoc County, where the presence of Bath Iron Works pushes its median wage to $23.83, which the research suggests could support an increase in the minimum wage to $14.30 an hour.

But apply that math to other parts of the state and you get a very different outcome. The median wage in most Maine counties lags far behind Sagadahoc’s – in the $14 to $16 an hour range, a level that the research indicates could support an increase in the minimum wage to no more than $9.60 an hour without running the risk of job losses.

In Piscataquis County, where the median wage of $13.27 is the state’s lowest, the formula suggests that minimum wages could be raised to only $7.96 an hour without causing problems – barely above the state’s current minimum, which has been in place since 2009.

NUMBERS AND BEST GUESSES

Michael Reich, director of the California research institute, said the formula is a good yardstick when considering minimum wage increases. He said cities that have actually implemented higher minimum wages have seen positive results so far because they have been adopted primarily in high-wage locations.

“My research indicates that minimum wages thus far have been mainly absorbed by (lower costs because of) reductions in employee turnover and small increases in prices, especially in restaurants,” he said. “The evidence for negative employment effects is very weak.”

And, he said, there have been no catastrophic drops in jobs when the minimum wage is raised.

“Employment doesn’t plummet once the minimum wage exceeds any given level or ratio,” he said in an email. “When it does start to decline, the fall will be very gradual. Moreover, the trade-offs in increased income in the low-wage community could still generate a very positive benefit-cost calculation.”

The job losses are projected if a minimum wage exceeds the 60 percent threshold because researchers believe labor costs would rise high enough for business owners to cut jobs to keep operating budgets in line. For most businesses, personnel costs are the single greatest expense.

Other economists say the formula Reich and his colleagues developed seems reasonable, but they caution that the kinds of increases being proposed in Maine are much larger than past hikes. Currently, Portland voters will decide in November whether to raise the city minimum wage to $15 per hour and efforts are underway to get a $12 minimum wage question on a statewide ballot next year.

“It’s really an out-of-sample kind of question,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and former chief economist and economic adviser to Vice President Joe Biden.

Bernstein said predicting the impact of minimum wage increases is somewhat foolhardy, although he understands the desire to get a handle on what the increases could mean.

He said that proposals that would phase in the raises – like most of those being considered in Maine – should mitigate the impact.

“But it’s still wait and see,” he said.

PHASING-IN PERIOD

Michael Hillard, an economics professor at the University of Southern Maine, said he agrees with Reich that any job losses would likely not be dramatic, and also agrees that phasing-in periods are needed.

“The bottom line is, raising the minimum wage moderately and phasing it in over a period of time, there isn’t much evidence that you’re going to see job losses,” he said.

For employers, Hillard said, wages are more than dollars and cents. He said they need to consider the quality and productivity of the workers they have if they decide to cut jobs in response to a higher minimum wage. Likewise, they have to take into account the cost of hiring and training new workers when business comes back enough to justify adding jobs.

“Sometimes, the cost doesn’t go up” with the minimum wage when those factors are included, he said, and job cuts are avoided.

But critics of raising the minimum wage contend that job losses would be high if the minimum wage is hiked.

The conservative Employment Policies Institute this month said a $12 minimum wage in Maine – a proposal that could be on the November 2016 ballot if the Maine People’s Alliance gathers enough signatures for a referendum question – would cost about 3,700 jobs.

That’s based on a 2014 analysis by the Congressional Budget Office, which forecast that increasing the minimum wage to $10.10 an hour nationwide – the rate the Portland City Council preliminarily approved this summer, to take effect on Jan. 1, 2016 – could cost up to 500,000 jobs. However, the CBO said hiking the minimum wage to that level would also increase real income by $2 billion and lift about 900,000 people out of poverty.

Mike Tipping, communications director for the Maine People’s Alliance, said the organization’s proposed statewide minimum wage hike takes a go-slow approach to mitigate any negative impact on jobs. It would raise the minimum wage in steps, with the initial increase to $9 an hour in January 2017 and yearly increases of $1 an hour to $12 an hour in 2020.

“I think you definitely need to do it on a phase-in basis,” Tipping said. “There’s a difference of opinion on this – some say (to raise it) higher and faster.”

The proposal on the ballot in Portland this fall takes that approach, at least for large employers, by boosting the minimum wage for them to $15 a hour by July 1, 2017. But Tom MacMillan, one of the backers of the initiative, said the effort helps small businesses by stretching out the increase for them, with the minimum wage rising to $15 by 2019.

The MPA released poll results last week showing that 76 percent of the respondents would vote for the group’s referendum question if it gets on the ballot and 48 percent said they would vote for the Portland initiative to raise the minimum wage in the city to $15 an hour. Forty percent were opposed and 12 percent undecided.

The poll, of 452 likely Portland voters, had a margin of error of +/- 4.5 percentage points.

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CLARIFICATION: This story was updated at 4 p.m. on March 11, 2016, to include wage data for a full-time, full-year wage earner in Maine.

 

 

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