New Hampshire’s Minimum Wage

By the number of research papers published, the minimum wage is the most hotly debated topic in American labor economics. In 2015, over 20 states will increase their minimum wage to a level above the federal minimum wage. New Hampshire is one of 21 states to not have a minimum wage above the federal level. It also has the lowest minimum wage in New England and is one of the few states in history to pass legislation to remove its statewide minimum wage in 2011.

Reported by the Bureau of Labor Statistics, New Hampshire has 11,000 minimum wage workers, representing 3.0 percent of the state’s hourly paid workforce. Opponents of minimum wage proposals often point to the fact that New Hampshire has the lowest percent of minimum wage workers in New England and one of the lowest in the nation. Tennessee, Idaho and Alabama have over 6.8 percent of their state’s workforce making at or below minimum wage.

Minimum wages across the country.
Minimum wages across the country.

According to New Hampshire business and trade organizations, minimum wage workers are limited to trainees and disabled workers. However, thousands of workers get paid just above the minimum wage. Using data from the Current Population Survey, a minimum wage increase to $9.00 per hour would directly increase the salary of 47,500 New Hampshire workers, and an increase to $10.10 would increase the salary of almost 80,000 workers.

New Hampshire’s median wage is just above $17, and even though a small proportion of New Hampshire’s workforce is paid the minimum wage, almost twenty percent earn below $10 an hour. Take McDonald’s for example; McDonald’s workers in the Granite State have an average crew salary just above $8.50, which is not even a dollar higher than the averages seen in southern states like Alabama and Mississippi based off online salary reporting (from indeed.com glassdoor.com). A minimum wage increase above $9 would have a large binding impact on the New Hampshire workforce.

On March 3rd, 2015, I sat before the New Hampshire Senate Finance Committee, testifying with the Dartmouth Policy Research Shop on an economic analysis report for minimum wage increases. Our objective report focused on the likely impacts on New Hampshire’s economy, businesses and citizens. Following our fifteen-minute testimony on SB 261, the floor was opened up to questions.

New Hampshire State House.
New Hampshire State House.

Senator Reagan (R-Deerfield) was the first to speak, and he immediately questioned, “if we dictate to a business that they are now going to have an increase expense in their wage line, where will that money come from?”

It was the classic colloquial minimum wage question. In reality, labor markets rarely behave like traditional competitive markets but have monopolistic characteristics and efficiency wage features. Our research focused on examining New Hampshire employment effects from minimum wage increases. Using data from the Quarterly Census of Employment and Wages, we examined the effect of minimum wage increases from New Hampshire’s contiguous county pairs – adjacent counties that straddle the state border — between 1990 and 2006. Controlling for population growth, we found no evidence that an increase in a state’s minimum wage led to a decrease in levels of employment.

Where did businesses get the money? Meta-analysis research (i.e.: studies that aggregate data from previous peer-reviewed research) has observed a net income increase following minimum wage increases. This increase in income for low wage workers leads to a fiscal multiplier effect, which boosts spending and consumption. Over the past forty years, literature has examined how higher wages increase worker retention and productivity, as workers earn enough to afford childcare and improved healthcare. And this increase in employee retention decreases the costs a business has to pay for labor turnover and training. Even though our research saw no negative employment effects in New Hampshire from previous minimum wage increases, some research has observed businesses raising prices or decreasing worker hours and fringe benefits.

Senator Reagan did not seem pleased. Before I could finish he was granted a follow up question.  “So can somebody answer my question, where are all these increased dollars going to come from to pay these employees, where is a business going to get the money to pay the increased wages?”

Disgruntled, I realized a macroeconomic answer was not going to work. The question was too rhetorical. Where do businesses get money to pay for taxes? Where do businesses get money to pay for an increase in property rental rates? I started to explain mathematically the very low elasticities observed with individual state minimum wage increases. Where by aggregating past research, a 10 percent increase in a state’s minimum wage frequently led to less than a 1 percent increase in prices and teen unemployment, or a 1 percent decrease in jobs or average hours worked.

Before I could continue, the senator interrupted me, “just get back to the question.” Thankfully the chairwoman of the committee stepped in to end the line of questioning, but I was puzzled by the Senator’s inability to recognize the flexibility of businesses’ cash flow. Economics is not a zero-sum game. There is no finite level of employment, income or production.

The University of New Hampshire estimates that the living wage in New Hampshire is around $9.68, the full time wage necessary for a single adult to meet basic needs of housing, food and transportation. New Hampshire’s minimum wage earners of $7.25 are largely non-teen (72 percent) and around 15 percent are parents. According to the New Hampshire Fiscal Policy Institute, increasing the minimum wage to a level adequate the living wage would help thousands of families reach a “living wage.” And this boost in net income, according to the Economic Policy Institute, would decrease the poverty rate as well as state public welfare spending, which could reduce net government spending.

Even with the citizens’ interest in mind, state representatives must regard the academic literature before coming to conclusions on economic issues. Increasing the minimum wage is not a destructive macroeconomic toll on the state economy. It is time for the New Hampshire State Senate to not just have a minimal comprehension of the minimum wage.