The year 2017 may be a landmark period in economic history, but perhaps for the wrong reasons. A record 19 states now have minimum wage increases that will impact millions of workers, mostly those in retail and entry-level jobs. Furthermore, the government-mandated pay raises are not just occurring in liberal locales. Several states that voted for President-elect Donald Trump have also ramped up their minimum wage laws. This sets the stage of whether or not direct government action on state unemployment can positively impact the overall job market.
On surface level, it’s easy to assume that Republicans will oppose any increase in the minimum wage. As the so-called business oriented party, Republicans have traditionally argued that the minimum wage does more harm to state unemployment trends than good. Citing free market principles, they argue for the health of the low wage job market as a means for new laborers to gain valuable work experience. From there, these workers can springboard to bigger and better things. Just as importantly, the minimum wage increases costs for businesses, thereby accelerating the national unemployment rate.
Republicans have a valid point regarding the latter. Equity shares for several retailers — notably big-box retailers — have suffered a sharp drop in momentum. What gains they may have made heading into the “Black Friday” shopping season have largely eroded. Part of that has to do with their inventory count. A cursory look at the “Days Inventory” ratio for various retailers reveals that many companies are not moving their products quickly enough. That’s money that is literally taking up valuable real estate for the next season’s products.
In order to ameliorate the process, retailers last year offered heavy discounts. While that rings up revenue at the checkout lanes, it is net deleterious to the bottom line. Minimum wage increases only exacerbates this situation by adding a further cost for — and this is a critical point often missed by political pundits — no new benefit.
In order to improve the job market and substantively bring down the national unemployment rate, the soon-to-be President Donald Trump must reinstate the culture of meritocracy. That is, the minimum wage increase in and of itself isn’t a bad idea — but this has to be a two-sided conversation. Any worker would love to earn more money, but he or she then has to bring more to the table. Otherwise, those that engage in minimum wage increases will soon find their state unemployment rates move higher still.
Of course, this is easier said than done. The American electorate voted for Donald Trump not just out of patriotism, but what he promised for the working class — his core voting base. The Trump policy can’t dance around the minimum wage issue. If he fails to put extra cash in workers’ wallets, it will be four short years for President Donald Trump.
The facts are the facts. Michigan, which came through for Trump in a “big league” way in November, has a state unemployment rate of 4.9%. As a means of comparison, the national unemployment rate is 4.6%, according to the Bureau of Labor Statistics. Their minimum wage is now $8.90, up 40 cents or a 4.7% increase. Ohio and Florida, both instrumental in the Donald Trump victory, also raised their minimum wage standards. While the bump was modest, both states have a state unemployment rate higher than the current national unemployment level.
Of particular note is Arizona. They voted for a whopping 24% jump in their minimum wage, or a near $2 raise from $8.05 to $10. Approximately 328,000 people in the Arizona job market will be affected by the new minimum wage law, which would see laborers gain an additional $78 for a typical 40-hour work week, or more than $300 per month. That amounts to a $4,000 impact per worker impact on the Arizona economy, or an annual “investment” of $1.3 billion — again, for no new corporate benefit.
Here’s the problem (among several): Arizona’s gross state product is $298.2 billion. In terms of economic power, it’s a middling state, ranked #21 in 2015. With their new laws, the minimum wage will account for 0.4% of GSP. Though not a crippling number, this is a coerced tax on businesses that will generate a response, either with reduced hiring or reduced hours. Either way, net effect on state unemployment — and eventually national unemployment — will likely be negative.
Though the numbers are on their side, Donald Trump and the Republicans will have to be careful if they want to ensure the success of the future Trump policy. The American public want a robust job market and they are frankly an impatient bunch. The minimum wage could thus be a political tool they could deploy come election year 2020.
At the same time, the Trump policy must stay true to its principles. Increasing the minimum wage will positively jolt the job market, but only temporarily. In order to actualize longer-term change, Trump must dig deeply into his business acumen. Ultimately, the presidency will be his biggest economic test, and will cement his legacy as either a true player, or a poseur.
Here are the 19 states affected by new minimum wage laws:
|State||Unemployment rate||New minimum wage||Raise increase|