Why is Retail Sales Job Growth Decelerating in States That Hiked Their Minimum Wage?

Investment bankers are typically interested in broad policy issues like the minimum wage as it affects economic growth, which in turn affects investment banking conditions. Some of the most contentious debates among economists centers on how much harm the minimum wage causes to individuals in so-called low wage industries.

With the recent release of the Bureau of Labor Statistics’ (BLS) job numbers by state for 2014, now is probably a good time to review what job growth did in states that imposed higher minimum wage rates compared to states that left things up to the employer and employee.

Minimum Wage Rates by State

Before addressing what kind (or if) there’s been a connection between higher minimum wage rates and missing employment, here’s a look at what minimum wage rates have been by state since 1980.

Among just states, as of now, the state of Washington has the highest minimum wage rate at $9.47 per hour. If one throws Washington D.C. into the mix, D.C. has the highest imposed minimum wage rate at $9.50 per hour. Overall, 29 states and Washington D.C. have minimum wage rates above the federal minimum wage rate of $7.25 per hour.

(Please note that the following graphic is not meant to be decipherable by state, but rather presented solely to show that a number of changes have occurred over the years.)

Minimum Wage Strings

New Rates Coming Up

One interesting observation in the previous graphic is the seasonality in newly imposed minimum wage increases. States generally don’t impose higher minimum wage rates until economic times are good or are improving (thus the jump in 2014).

In addition to the hiked rates in 2014, a number of new minimum wage increases are slated for 2015, 2016, and beyond. The list includes scheduled increases in Alaska, Arkansas, California, Connecticut, Delaware, D.C., Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New York, Vermont, and West Virginia.

More details on upcoming increases are available here.

Retail Sales Growth

The second component of this study is employment growth.  Of the industry’s most likely affected by higher minimum wage rates is the retail sector.

Here’s a look by state according to whether a state increased or decreased its minimum wage rate. It’s tough to see a strong variance, although there is a small difference. As one would expect, retail employment grew 0.71% in states that did not impose higher minimum wage rates and 0.66% in states that did impose higher minimum wage rates.

On total employment growth of around 2.5 million, the difference between the two would indicate that there’s about 38,000 jobs missing because of the higher minimum wage.

The result is not statistically significant, but the next section finds significance.

Retail 1.fw

Connection Between Minimum Wage Rates and Retail Sales Employment Growth Acceleration

The finding that perhaps 38,000 jobs might be missing in 2014 due to a higher minimum wage rates was only weak, and not statistically significant. Rather than testing “growth,” which is the year-over-year change in employment, the effect most likely showed up in “acceleration” or “deceleration”. Essentially, acceleration or deceleration relate to how the year-over-year growth rate is changing, rather than total jobs. Usually, financial signals show up here first.

Here’s a look at what happened to the change in year-over-year growth according to whether a state hiked its minimum wage. Interestingly, the effect is much larger.

States that left things as is – i.e. did not impose higher minimum wage rates – saw retail employment accelerate, meaning job growth got stronger.  The acceleration is +0.6%. In contrast, states that hiked their minimum wage rates saw retail sales employment decelerate, meaning job growth got weaker.  The deceleration is -1.4%.

Minimum wage 2.fw

Conclusion

Overall, states that imposed higher minimum wage rates in 2014 saw employment growth in the retail sector decelerate, by 1.4%. In contrast, states that left things as is saw retail sales growth accelerate, by about 06% on average. The difference equates to about 38,000 jobs missing from minimum wage-hiking states.

It is, of course, too early to make a complete judgment on the extent of missing jobs due to higher minimum wage rates.  With that said, early evidence points towards a reasonably strong negative effect on retail sales employment.

 

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