California's planned increase of its minimum wage to $10 an hour will cost the state 190,000 jobs, a new report from the conservative think tank American Action Forum estimates.
If a $10 minimum wage were implemented in all 50 states, according to AAF’s analysis, 2.3 million new jobs would be lost across the country.
California Gov. Jerry Brown signed a law raising the state’s minimum wage to $9 by next year and and to $10 by 2016. That would be the highest rate in the country. The current federal minimum wage is $7.25.
President Obama identified raising the minimum wage as a goal in his State of the Union Address. Obama called for raising the rate to $9 and indexing it for inflation. Some Congressional Democrats have proposed setting it at $10.10.
AAF president Douglas Holtz-Eakin, a former economic adviser to President George W. Bush and director of the Congressional Budget Office, said the think tank was motivated to examine the issue when the passage of California's new law coincided with the release of a new study that shows the negative effects of the minimum wage.
That study, published in July by economists Jonathan Meer and Jeremy West of Texas A&M University, assesses the impact of minimum wage hikes on employment growth, rather than on employment levels, as previous studies have done. Meer and West found that a 10-percent increase in the real minimum wage is associated with a 0.53-percentage point decrease in the net job growth rate.
AAF multiplied that estimate by the increase in the minimum wage that would be required to bring it to $10 in every state.
The 18 states that have set their rates higher than the federal government would see a smaller impact, while the other states would see a bigger hit to job growth. The impact would be largest, in terms of slowed job growth, in California. Vermont, with a small population, would see only a 2,600-person reduction in hiring. Washington would only lose 13,400 new jobs because its existing rate, $9.19, is already close to $10.
For 32 states, that reduction in job growth would mean, on net, decreases in employment. Ohio, for instance, would go from a job growth rate of 32,500 to losing 71,400 jobs a year. Overall employment would fall by 320,000 in the U.S.
Holtz-Eakin told the Washington Examiner that the Meer-West research on which AAF’s study is based will “have to stand up to the usual scrutiny” that any study undergoes, but that it is well-designed.
He also said that he didn’t see any likelihood of Obama’s minimum wage proposal being enacted, but that he couldn’t speak to all 50 states.
AAF is a center-right think tank in Washington, founded in 2009. It is affiliated with the American Action Network, a nonprofit chaired by former Republican senator Norm Coleman of Minnesota.