NCPA - National Center for Policy Analysis

Impact Of New Minimum Wage Will Vary

September 19, 2000

The two houses of Congress are in the midst of reconciling separate bills political observers expect will raise the current $5.15 minimum wage to $6.15 in two steps over the next two years.

Experts expect the economic impact to vary depending on whether a business is in a high-cost urban area or a low-cost rural one, whether employees are tipped or rely solely on wages, or whether the enterprise is in one of the 10 states plus the District of Columbia that have state minimum wages set higher than the federally-mandated floor.

With labor as scarce as it is and employers forced to compete for workers, many firms are already paying wages that meet or exceed the new standards. So the new mandate will have little effect on them.

But employers in low-wage areas may cut payrolls or at least not hire new applicants.

  • Restaurants and retailers have traditionally been the two sectors of the economy most affected by minimum wage increases.
  • After the minimum was raised by 90 cents in two stages in 1996 and 1997, employment growth at eating and drinking establishments slowed to 129,100 in 1997 from 276,400 in 1995.
  • And menu prices -- which had long trailed inflation -- suddenly began to outpace inflation beginning in 1997.

In addition to Washington, D.C., the states having minimums higher than federal law are: Oregon, Washington, Connecticut, Rhode Island, Massachusetts, Vermont, California, Delaware, Alaska and Hawaii.

Source: Robert D. Hershey Jr., "The Cost of Not Living on a $5.15 Minimum," New York Times, September 19, 2000.


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