The Times West Virginian

February 23, 2014

Experts say hike in state minimum wage would have variety of impacts

By Jessica Borders
Times West Virginian

FAIRMONT — Economic experts believe a minimum wage increase, which is currently being considered in the West Virginia Legislature, could have a variety of impacts on the state.

On Feb. 12, the House of Delegates passed legislation aimed at increasing the minimum wage in the state by $1.50 within two years, and the bill is now awaiting action in the Senate. If House Bill 4283 becomes law, the minimum wage, which is currently $7.25 per hour, would go up to $8 after Jan. 1, 2015, and then $8.75 the following year.

The Senate is also working on its own legislation, Senate Bill 411, with the goal of raising the state minimum wage. This bill proposes that the minimum wage change to $7.85 per hour after June 30 of this year and $8.25 a year later.

2008 was the last time that the minimum wage was raised in West Virginia.

John Deskins, director of the West Virginia University College of Business and Economics’ Bureau of Business and Economic Research, said the effect of this potential minimum wage increase on the economy is a question of weighing competing outcomes.

Different theories exist that say this change would be both good and bad for business.

On one side of the argument, an increased wage brings up the issue of the cost of doing business, he said. Some people are worried that the additional cost of paying higher wages may harm businesses and make them less profitable.

As a result, companies could slow down their production and hire fewer workers. In some industries, operations could even become more capital intensive, using more machinery rather than hiring more workers, Deskins said.

“Part of that increase in costs will flow through to higher prices for our consumers,” he said.

In extreme circumstances, businesses in West Virginia could relocate to another state where labor costs are cheaper or even close down.

“A lot of proponents of raising the minimum wage argue that previous studies show that businesses don’t change their employment very much when the minimum wage increases,” he said.

However, Deskins cautioned that many times supporters cite statistics related to federal minimum wage increases, which have a different impact on the state.

The response from businesses could be larger at the state level because companies have the option of just moving their operations to another state if they don’t like the labor costs, and many companies have different locations anyway.

“The one positive is now those minimum wage workers will have more money to spend,” he said.

There’s a good chance people will spend those additional wages in West Virginia, which will give the economy a boost.

“We have these competing possibilities, and one really has to dig into the data to figure out which argument is most compelling,” Deskins said.

Dr. Amy Godfrey, assistant professor of economics in Fairmont State University’s School of Business, provided her thoughts on how an increase in the state minimum wage would affect workers.

Workers who currently make minimum wage could possibly move over the poverty line due to the growth in their annual income levels, she said. On the other hand, some employers won’t be able to afford these higher wages, and as a consequence employees may lose their jobs or see their number of work hours reduced.

“As a whole, the West Virginia economy will experience an increase in total income levels,” Godfrey said. “This increase will come from increases in families’ incomes because they will be earning more but will be diminished by the elimination of some low-wage jobs as well as the movement from full-time to part-time positions.”

She also stressed that the new minimum wage would make business operations more expensive.

“Business will have to make the decision on how to make up for this additional cost,” Godfrey said. “Some businesses will choose to decrease the number of workers they employee or decrease the number of hours their employees work. Others will pass this additional cost on to the customers by increasing the price of their goods/services.”

Many businesses may continue to operate with their same workforce, but raise prices instead, she said. Because the minimum wage would be rolled out over a time frame of two years, consumers would see the increases in prices happening slowly.

According to Sean O’Leary, policy analyst for the West Virginia Center on Budget and Policy, House Bill 4283 would give a raise to about 127,000 workers in the state.

“The stereotype is that minimum wage workers are teenagers working part time for spending money,” he said.

But that stereotype is not true.

Demographically, about 70 percent of those workers are over the age of 25, with 35 as the average age, and 60 percent are women. Seventy-five percent have at least a high school education, and 38 percent have some college education. Also, 60 percent of them work full time, O’Leary said.

He added that those workers are generally in low-income families, and about half are married or have children. If a minimum wage increase is adopted, about 44,000 children in the state would have one parent who would get a raise, which would be a big deal for those families.

For these low-income workers who are supporting their families, a minimum wage increase would give them a little bit more income to buy what they need, O’Leary said.

“It’s a small boost for the economy and a small boost for those workers,” he said.

The employees who get higher wages turn around and make purchases at businesses in the community.

O’Leary commented that a lot of research shows that minimum wage increases have either a small impact or no impact on employment or prices.

He said that when businesses pay higher wages, they actually see a large reduction in turnover costs because employees stay on the job longer. As a result, companies aren’t constantly having to rehire or retrain workers, and those cost savings generally offset the wage increase.

“This is one way to help those low-wage workers,” O’Leary said. “Workers are producing more than they ever have. Their productivity is higher than it’s ever been, but their wages just haven't been (growing to reflect that).”

Also, the minimum wage has lost value over the years due to inflation, he said.

Email Jessica Borders at jborders@timeswv.com or follow her on Twitter @JBordersTWV.