Minimum Wage Report
The Minimum Wage And Its Effects On Kentucky's Economy
Executive Summary: While proposals to raise the minimum-wage failed in Washington and Frankfort in 2014, the debate is expected to continue at both the state and federal levels in 2015. A careful review of the evidence reveals no economic consensus that increasing the minimum-wage leads to increased employment. In fact, mandating a large minimum-wage increase would have a devastating effect on Kentucky’s economy and the employment opportunities of its young people:
Minimum Wage Report Cover
Larger increases in the minimum-wage cause more job losses than do smaller minimum-wage hikes. Certainly, Louisville Metro Council’s decision to forgo a larger hike in the minimum-wage by raising it to $9 over several years will have a less-harmful effect on employment than a steep immediate increase to $10.10 would.
While raising the federal minimum-wage hurts employment generally, it particularly harms it in Kentucky. Past minimum-wage hikes have resulted in an additional .2 percentage-point increase in Kentucky’s unemployment rate relative to the rest of the U.S. The states that see the largest escalation in unemployment from a minimum-wage increase are those with the lowest wages, which is why Kentucky’s unemployment rate spikes relative to the U.S. rate when the federal minimum-wage is increased.
In May 2013, the mean hourly wage for the country in the food preparation and serving-related occupations group was $10.38 an hour. Nine percent of U.S. workers were in that occupation compared to 9.4 percent of the Kentucky workforce. Louisville’s average wage in this occupational group was $9.70 an hour compared to just $8.79 for the state at large. An increase in the federal minimum-wage would do little for unemployment in the food-service industry nationally, have a minor effect on unemployment in Louisville but a major negative impact on unemployment in the food-service industry in rural Kentucky where wage rates are below state averages.
In August 2014, Kentucky’s unemployment rate stood at 7.1 percent compared to the national average of 6.1 percent. A unilateral increase in the Kentucky state minimum-wage – given the commonwealth’s relatively high unemployment rate during the past few years and low average-wage rate – would have a significantly negative impact on youth, low-skilled, refugee and rural employment in the commonwealth.
The average textile-industry worker in Kentucky currently makes $8.94 an hour. Increasing labor costs to $10.10 an hour may be enough to ensure the extinction altogether of that industry in Kentucky as the jobs could be outsourced to lower wage countries over time.
Taking the minimum-wage to $10.10 an hour is unprecedented in U.S. history in terms of real purchasing power. Such an increase in Kentucky’s minimum-wage will result in lower employment rates for the Bluegrass State’s youth and low-skilled workers. Its negative effects will be concentrated in poor, rural counties which already face an uphill battle regarding stubbornly high unemployment rates. Also, fewer jobs for Kentucky’s youth will lead to increased reliance on student loans to finance their dreams of higher education.
This is not the time for another 40 percent increase in the Kentucky minimum-wage.