The minimum wage conversation has come to Ohio. Earlier this week, Ohio Attorney General Dave Yost certified ballot summary language for a proposed Ohio constitutional amendment to raise the state’s minimum wage from the current $8.70 to $13 per hour. This proposal, backed by state service worker and teachers unions, comes at the same time that Democrats in the Ohio House are pushing a $15 minimum wage.
So what would happen if Ohio adopted a higher minimum wage? Would it lead to higher wages and reduction in poverty as advocates for the policy claim? Or would it lead to an increase in unemployment as detractors of minimum wage hikes argue?
One place we can look for guidance is an impressive study by the Congressional Budget Office (CBO) on proposals to increase the federal minimum wage. The CBO used Current Population Survey data and available empirical data on employment elasticities to estimate the wage, poverty, and employment impacts of minimum wage hikes.
A quick and dirty way of using this data is to scale the scope of this federal study down to the size of the state of Ohio. There are some reasons this approach is limited: the CBO study includes some states that have higher minimum wages and some that have lower minimum wages than Ohio’s, which falls in the middle of the distribution of states. Ohio is a tad older, a bit whiter, and notably poorer than the country as a whole. A full study replicating CBO’s methodology would be valuable. Unfortunately, I only have the time to write a blog post about this, so I will stick with the imperfect scaling model, reducing CBO’s numbers to 3.6% of projected people affected and assuming linear impacts to extrapolate the impacts of a $13 minimum wage until someone will (shameless plug!) pay me to make more precise estimates. While this approach is not perfect, the direction of the impact is likely to be the same and overall takeaways similar (undermining my plug) to a more thorough replication.
Below is a chart of the projected number of people who would be impacted by the two proposed minimum wage increases based solely on CBO projections scaled to the size of the state of Ohio followed by a discussion of what conclusions we can draw from them.
Data from the Congressional Budget Office and the US Census Bureau.
Raising the Minimum Wage Will Likely…Raise Wages
This may seem obvious, but a higher minimum wage means higher wages for Ohioans—potentially a lot of Ohioans. Using this methodology, we estimate that over 320,000 Ohioans could see their earnings increase in an average week under a $13 minimum wage and almost 610,000 Ohioans could see their earnings increase in an average week under a $15 minimum wage. This represents the number of Ohioans who are currently working under the proposed minimum wage thresholds.
Similarly, 280,000 Ohioans are estimated to be just above the $13 wage threshold and 670,000 are just above the $15 wage threshold, putting them in a range that could be impacted by employers raising wages to comply with the new wage levels. This means that a total of 600,000 to 1 million Ohioans could experience higher wages under a $13 or $15 minimum wage scenario. This total amounts to 11-17% of the total workforce of the state in December 2019.
Wage increases would likely be concentrated among the poor and near-poor as well. Assuming wage increases grow linearly from $12 to $15 and that increases in Ohio would look similar to those reported in the CBO report, a $13 minimum wage would increase an Ohio family in poverty’s wages by 2.7% and a $15 minimum wage would increase its wages by 5.3%, putting hundreds of dollars in the pocket of the average poor family in Ohio. Families in the 100-300% of poverty (making on average $29,000 to $56,000 a year) would also benefit from the increase, families in the 300-600% of poverty range (averaging $95,000 a year) would be marginally impacted, and families making over 600% of the federal poverty level (averaging $230,000 a year) would see wages decrease.
Data from the Congressional Budget Office.
A Minimum Wage Hike Will Probably Reduce Employment
All increases of $12 an hour and higher estimated by the Congressional Budget Office led to a median estimate of a net decrease in employment. While an increase in the minimum wage could bring workers with higher reservation wages into the workforce and could increase employment by correcting for labor market power imbalances slanted towards employers, the CBO projects those impacts would not be as large as the classic supply and demand dynamics that lead to reduced employment in the face of higher wages.
It is worth noting that CBO’s projections all include negligible impacts to employment in its likely range of outcomes, encompassing two-thirds of potential outcomes. It is also worth noting that the high end of this range is quite substantial, with likely estimates skewed towards higher employment impacts. Thus, more extreme employment impacts exist on the high end of the estimate than the low end. Using the same methodology we used to estimate number of workers with wage impacts, we can estimate that a $13 minimum wage would lead to a reduction of 0-75,000 jobs in Ohio with a median estimate of 17,000 lost jobs and that a $15 minimum wage would lead to a reduction of 0-130,000 jobs with a median estimate of 29,000 lost jobs. For reference, Ohio added about 110,000 jobs in 2019, which means that a $13 minimum wage would cost 0-71% of 2019 job growth with a median estimate of 16% and a $15 minimum wage would cost 0-130% of 2019 job growth with a median estimate of 27%. The highest likely impact of a $12 minimum wage would be to lose 1.3% of the total December 2019 workforce size and the highest likely impact of a $15 minimum wage would be to lose 2.4% of the total December 2019 workforce size.
Data from the Congressional Budget Office and the US Census Bureau.
Minimum Wage Increases Will Likely Reduce Poverty
Lastly, the CBO estimates 400,000 Americans would be pulled out of poverty by a $12 minimum wage and 1.3 million Americans would be pulled out of poverty by a $15 minimum wage. Scaling this down to the size of the state of Ohio and assuming a linear trend in poverty reduction from $12 to $15, a $13 minimum wage in Ohio would pull 25,000 Ohioans out of poverty and a $15 minimum wage would pull 46,000 Ohioans out of poverty. In 2018, 1.6 million Ohioans were in poverty, meaning a $13 minimum wage would lead to a 0.2 percentage point decrease in the poverty rate and a $15 minimum wage would lead to a half percentage point decrease in the poverty rate.
It was stressed above and it is worth stressing again: the precision of these estimates could be honed by a more thorough investigation of state-level data. That being said, the takeaways that a minimum wage would likely raise wages for a substantial portion of the low-income workforce, somewhat reduce employment, and have a modest impact on poverty would probably hold even with a more sophisticated analysis. Now it is up to policymakers and the general public to evaluate those tradeoffs and determine their taste for the levels of projected increased wages and decreased poverty in exchange for projected decreased employment.