Ohio to increase minimum wage on New Year’s Day

by Policy Matters Ohio on December 19th, 2012
December 19th, 2012
   

This modest annual minimum wage increase will promote economic growth here and protect the real value of wages during the weak post-recession recovery. Raising wages for those paid the least means more money is spent in our communities, and it means low-wage working families have just a little more in their paycheck to make ends meet.

For Immediate Release
Contact: Amy Hanauer, 216.361.9801 or 216.375.9274
Emma Stieglitz, 646.200.5307
   

Raise will benefit 215,000 low-wage workers and boost consumer spending by $43 million
Cleveland, OH – On January 1st, Ohio’s minimum wage will increase by 15 cents to $7.85 per hour, benefiting an estimated 215,000 low-wage workers in the state. Ohio’s minimum wage increase means an extra $340 per year in wages for the average directly-affected worker, and the increased consumer spending generated by the minimum wage hike will boost GDP by $43 million, according to an analysis by the nonpartisan Economic Policy Institute. Ohio is joined by nine states – Arizona, Colorado, Florida, Missouri, Montana, Oregon, Rhode Island, Vermont, and Washington – that will also raise state minimum wage rates on New Year’s Day, boosting wages for nearly one million workers nationwide.
 
Ohio’s January 1st minimum wage increase is the result of a state constitutional amendment approved by voters in 2006 that provides for annual rate adjustments to keep pace with the rising cost of living. An estimated 199,000 workers in Ohio will be directly impacted as the new minimum wage rate will exceed their current hourly pay, and 16,000 more will see a raise as pay scales are adjusted upward to reflect the new minimum wage, according to an analysis of government data by the Economic Policy Institute. Seventy-three percent of these low-wage workers are adults over 20 years old; 66 percent work 20 hours per week or more; 39 percent have at least some college education. [See chart for complete demographic breakdown.]
 
“This modest annual minimum wage increase will promote economic growth here and protect the real value of wages during the weak post-recession recovery,” said Amy Hanauer, executive director of Policy Matters Ohio. “Raising wages for those paid the least means more money is spent in our communities, and it means low-wage working families have just a little more in their paycheck to make ends meet.”
 
While weak consumer demand is holding back business expansion, raising the minimum wage puts more money in the pockets of low-wage workers who typically spend that money immediately on goods and services. In total, the minimum wage increases taking effect in all ten states on January 1st will generate over $183 million in new economic activity and create the equivalent of 1,500 new full-time jobs.
 
As of January 1st, 2013, 19 states plus the District of Columbia will have minimum wage rates above the federal level of $7.25 per hour, which is just over $15,000 per year for a full-time minimum wage earner. Ohio also numbers among ten states that increase their minimum wage rates annually to ensure that real wages for the lowest-paid workers do not fall even further behind: these states include Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont, and Washington. Nevada has not scheduled a cost of living adjustment to take effect this year.
 
Because the federal minimum wage is not indexed to rise with inflation, its real value erodes every year unless Congress approves an increase. Without further action from Congress, the current federal minimum wage of $7.25 per hour will lose nearly 20 percent of its real value by 2022 and have the purchasing power of only $5.99 in today’s dollars, according to a new data brief by the National Employment Law Project.
 
The Fair Minimum Wage Act of 2012, introduced in the U.S. Senate and House of Representatives in July, would help recover much of this lost value by raising the federal minimum wage to $9.80 by 2014 and adjusting it annually with rising living costs thereafter. The Fair Minimum Wage Act would also raise the minimum wage for tipped workers from its current low rate of $2.13 per hour, where it has been frozen since 1991, to $6.85 over five years. Thereafter, it would be fixed at 70 percent of the full minimum wage.
 
A large body of research shows that raising the minimum wage is an effective way to boost the incomes of low-paid workers without reducing employment.  A groundbreaking 1994 study by David Card and Alan Krueger, current chair of the White House Council of Economic Advisers, found that an increase in New Jersey’s minimum wage did not reduce employment among fast-food restaurants.  These findings have been confirmed by 15 years of economic research, including a 2010 study published in the Review of Economics and Statistics that analyzed data from more than 500 counties and found that minimum wage increases did not cost jobs.  Another recent study published in April 2011 in the journal Industrial Relations found that even during times of high unemployment, minimum wage increases did not lead to job loss.
 
Strengthening the buying power of low-wage workers is especially critical in this economic climate. A recent study by the National Employment Law Project reveals that, while 60 percent of jobs lost during the recession have been middle- and high-wage occupations, low-wage occupations have accounted for 58 percent of jobs created in the post-recession recovery.
 
The following table lists the states with increases; amount of increase; the new wage on January 1, 2013; the total workers directly and indirectly affected, the increase in annual earnings for the average affected workers, and the GDP impact of each minimum wage increase.

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