Eric Morath reports in the Wall Street Journal on minimum wage increases that have gone into effect for this new year:
Economists and policy makers are of two views on the costs and benefits of minimum-wage increases. While the policy puts more money in the pockets of low-wage workers, it also gives employers less incentive to add to their payrolls, leaving some workers behind.
A 2014 study from the nonpartisan Congressional Budget Office found raising the federal minimum wage to $10.10 an hour would reduce job creation by 500,000 over two years. At the same time, the report estimated that the increase in the federal minimum wage would raise the pay of 16.5 million workers who kept their jobs.
The accompanying chart shows that Connecticut went up by fifty cents, while Massachusetts went up a whopping dollar, tying Washington state for highest in the country (not counting D.C.). Rhode Island employers with minimum wage workers now have a fifty-cent advantage over their Connecticut competitors and a $1.40 advantage over Massachusetts. That goes right to their bottom line.
Here’s what the Ocean State should do: Keep our minimum wage the same but implement a dramatic reduction of the sales tax, at least down to 3%. That will boost sales in RI and increase employer demand for minimum wage workers, some of whom will be those frozen out of Massachusetts and Connecticut by the too-high minimum wages there. However, the increased demand for labor and the improving prospects for retailers and all industries that serve them should drive up wages naturally.
Rhode Island faces a golden opportunity to increase the prosperity of its population, and all we need is for our politicians to resist the easy “me, too” of voter giveaways at businesses’ expense and make budget adjustments that put Rhode Island families first. Those who object that states should not enter into this sort of attempt to undercut each other must then explain why we have to resign to giving money-grubbing businesses taxpayer handouts in order to compete with other states in that way.