NCPA - National Center for Policy Analysis

Why Citywide Minimum Wage Hikes Are a Bad Idea

November 6, 2014

Typically, a minimum wage is set by the state -- it is rare for a city to enact its own minimum wage. As University of Kentucky professor Aaron Yelowitz explains, Santa Fe, San Francisco, Washington, D.C., Seattle and a few other places have minimum wages, but the majority of cities lack their own minimum wage.

Why? Because a citywide wage, explains Yelowitz, is especially harmful to the city that enacts it:

  • A citywide minimum wage does not work because businesses can move a few miles out of the city to avoid the additional labor costs; statewide laws, on the other hand, prevent such an easy fix. 
  • Shoppers can move as easily as businesses to other cities to do their shopping -- as a result, businesses in cities with minimum wages cannot respond to the wage hike by raising their prices, because a price hike would cost them customers.
  • This means that city businesses must find other ways to meet the additional labor costs: cutting jobs or hours for their employees. Indeed, he notes that a 2005 increase in Santa Fe\'s minimum wage from $5.15 to $8.50 an hour increased unemployment by 3.2 percentage points.

Those arguing for minimum wage increases insist they will help poor families, but Yelowitz stresses that hours, rather than wages, are the most important factor in lifting a person out of poverty. As NCPA Senior Fellow Peter Ferrara noted in a study earlier this year, only 2.7 percent of Americans who work full time, year round, are in poverty.

Source: Aaron Yelowitz, "Citywide Minimum Wage Hikes Do More Harm than Good," Economics21.org, November 3, 2014.

 

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