$15 Minimum Wage: The Impact on the Economy, Site Selection and Your Company
by King White, on Feb 24, 2021 8:37:57 AM
The controversy around a proposed federal minimum wage hike continues to unfold as the Biden administration pushes for an increase from $7.25 to $10, $12 or $15 per hour by 2025. The Congressional Budget Office (CBO) suggests the wage increase would boost the wages of 17 million workers, but also said that 1.3 to 1.4 million workers could become unemployed by 2025 if a $15 minimum were enacted. Roughly 29 million people of all ages, representing a quarter of the full-time, year-round workforce, had annual earnings in 2018 equal to less than $15 an hour, according to the Current Population Survey Annual Social and Economic Supplement from the U.S. Census Bureau. This is a massive portion of the workforce so the impact on the economy, site selection and your company could be far reaching. Site Selection Group investigates this issue to help you evaluate the potential impact to you.
Should minimum wage laws be determined by the state or federal government?
One argument is whether the federal government should even have a role in the minimum wage discussion. The current federal minimum wage hasn’t changed from $7.25 an hour in more than a decade, but states and cities can set their own minimum wage.
Many states around the country have already raised their minimums above the federal level. New York’s minimum wage, for example, stands at $12.50 an hour for most jobs outside New York City, where the minimum is $15 an hour for businesses with more than 11 employees. The most recent announcement was Florida’s planned increase to $15 per hour by 2025. Would it make more sense to let states determine what is in their best interest since every state has its own socio-economic objectives at the state and county level?
$15 per hour is higher than the livable wage in 915 of 925 metro areas in the US
One of the main arguments behind the need for an increase in the minimum wage is that the current minimum wage is far below the livable wage. The living wage is a metric developed by the Massachusetts Institute of Technology (MIT) that estimates the living wage (one adult, no children) by compiling geographically specific expenditure data for food, childcare, health care, housing, transportation and other basic necessities. The living wage ranges from a low of $9.50 in Martin, Tennessee to a high of $18.73 in San Francisco, California. Only 10 of 925 metro areas have a livable wage of more than $15 per hour. The following interactive maps provides a summary of the livable wages in all metro areas:
Livable Wage by Metropolitan Area
Source: Massachusetts Institute of Technology 2019-2020 Living Wage Report
Seven ways the minimum wage hike may impact you
Experts have identified many ways a minimum wage increase could impact the economy, site selection decisions and your business strategies. Here are seven things to consider as you develop a strategy to deal with possible wage increases for your company:
1. Layoffs by Small Business — Small family and midsize businesses will be disproportionately hurt by the extra costs incurred. The local neighborhood stores and businesses with thin profit margins will be forced to raise prices to make up for the additional labor costs. With the increased prices, customers may elect to take their business elsewhere. Losing customers means losing income, which could result in the business having to layoff workers or go out of business.
2. Retail Sector Technology – There are an estimated 10 million workers employed in the U.S. retail sector. To offset wage increases, retailers will be forced to invest in new technologies such as self-service technologies in order to reduce their reliance on front line workers. Some great example are Amazon Go stores and the conversion of check-out lanes at grocers, pharmacies and big box retailers.
3. Industrial Sector Robotics – There are over 13 million workers in the U.S. manufacturing and warehousing sectors. Unskilled positions within these operations will be impacted the greatest as the use of robotics could rapidly escalate to reduce labor costs and increase productivity.
4. Call Center Artificial Intelligence and Offshoring – There are an estimated 3 million call center workers in the U.S. Call centers will either utilize more artificial intelligence and self-service technology or shift call volume to onshore and offshore geographies to control their costs.
5. Teen Employment – Teenagers have long been a great low cost, flexible workforce that employers tap into to control costs. With increased minimum wages, employers might opt to hire more experienced workers.
6. Reduction in Working Hours – Employers may elect to cut hours for workers. It is reported that Seattle’s move to $15 an hour, a few years ago, resulted in workers given fewer hours and experiencing a net loss in pay.
7. Changing Corporate Site Selection Strategies – Companies are going to be forced to change their site selection strategies. Historically, companies found 20% to 30% in labor cost savings by locating in tertiary metro areas. If these savings are reduced, then employers will opt to locate in larger metro areas where labor scalability is much better or simply go offshore. As a result, the smaller, tertiary metro areas will see a reduction in job creation and capital investment in their communities.
The federal minimum wage legislation is facing significant headwinds. It is highly unlikely that it will be included in the stimulus bill currently in negotiation in Congress; however, most people didn’t predict the Democrats would win the Senate either. Regardless, companies need to be prepared for these changes and be able to pivot to control costs and maximize profitability whether it be through the implementation of alternative site selection strategies or other cost reduction initiatives.