Testimony: Unchaining the Minimum Wage from CPI
Testimony in Support of LD 1580: “An Act to Help Maine Small Businesses with Increasing Costs by Removing the Annual Cost-of-living Adjustment for the Minimum Wage”
Senator Tipping, Representative Roeder, and the distinguished members of the Committee on Labor and Housing, my name is Nick Murray and I serve as director of policy for Maine Policy Institute. We are a free market think tank, a nonpartisan, non-profit organization that advocates for individual liberty and economic freedom in Maine. Thank you for the opportunity to testify on LD 1580.
According to the Bureau of Labor Statistics, in 2021, only 1.3% of Maine workers were paid at hourly rates at or below the minimum wage. When wages rise artificially due to an increase in the minimum wage, even a small one due to the rise in CPI, payroll costs on businesses increase without compensation for growth in productivity or sales. With a majority of businesses operating on razor-thin profit margins, Maine’s minimum wage increases give many small businesses no choice but to reduce their operations, raise prices, lay off workers, transition to automation, or relocate to another state.
Perhaps counterintuitively, repealing the minimum wage, or at least halting its incessant climb, would bring greater benefits to workers.
Data bear this out. A study published in American Economic Journal studied the effects after Seattle set its citywide minimum wage to $13/hour in 2017. It found that those earning less than $19/hour saw their wages rise by 3.4%, but their working hours decreased by 7%. The low-wage workers who were employed in Washington before the policy went into effect saw their wages rise more than their hours fell, but made only about $12 more per week on average. Researchers found a lower rate of hiring for the low-wage workers who were not previously employed in the state before the new citywide minimum wage. Ultimately, workers lost from this experiment.
A study published in the American Journal of Health Economics in May 2021 found that “minimum wage increases lead to reductions in employer sponsored insurance coverage in families below 300% of the federal poverty level.” Researchers found that for every nominal $1 increase in the minimum wage, the probability of employer sponsored insurance coverage is reduced by about 1 percentage point.
Minimum wage Proponents’ oft-stated goal, a national, $15/hour minimum wage (though now they want $20/hour, given record inflation), would be disastrous for our nation’s economy. An analysis published by the nonprofit Employment Policies Institute (EPI), based on a 2019 CBO report, found that a $15/hour minimum wage would lead to 2 million jobs lost and collectively cost businesses over $99 billion. EPI also found that the job losses would hit the youngest workers (age 16-19) the hardest, with that group projected to lose more than 850,000 jobs. In Maine, they estimated the policy would cost 1,300 jobs and $90 million in increased business costs.
As its title states, a fantastic way for legislators to help businesses with increasing costs would be to remove the legal restrictions that force them to raise their costs. These include onerous bureaucratic rules, taxes, and the minimum wage.
Please deem LD 1580 “Ought To Pass” and provide Maine’s struggling small businesses with some measure of relief against skyrocketing costs of doing business. Thank you for your time and consideration.