By Caleb Taylor
How high is too high?
That’s the question UCA Assistant Professor of Economics and ACRE Scholar Jeremy Horpedahl considers in two recent media appearances regarding raising the minimum wage in Arkansas.
Arkansans will vote on whether to continue to increase the minimum wage in Arkansas to $11 per hour in 2021. Arkansas voters last approved a minimum wage increase in 2014 to $8.50 per hour, and the increase took place in three steps from 2015 to 2017. Cumulatively, the increase from $7.25 to $11 per hour is a roughly 50 percent increase over 6 years
In a syndicated op-ed for Tribune Content Agency published in the Chicago Tribune and other papers on October 23rd, Horpedahl notes that this latest minimum proposal would give Arkansas the distinction of having the highest minimum wage as a percentage of the state’s median wage.
Horpedahl said:
At $11 per hour, Arkansas’s wage would not be the highest in dollar terms, but it would be the highest in the way that matters: At over 70 percent of the state’s median wage, it will be slightly ahead of California in 2021. Currently Arkansas’ median wage, the amount earned by the person in the middle of the income distribution, is $14.82 (compared to just over $18 nationwide). An $11 wage in Arkansas, one of the poorest states in the country, is similar to a $15 wage in California, which they will have in 2022. The percent of the median wage is more relevant because it tells us how many workers will be impacted and by how much. There has been a lot of research by economists on the minimum wage, but one this high is well outside of the range of anything studied before.”
Horpedahl also discussed the consequences of raising the minimum wage in an appearance on “Arkansas Week” on the Arkansas Educational Television Network on October 19th.
Arkansas would be in uncharted territory from an economic perspective if the minimum wage was raised that high in Arkansas, according to Horpedahl.
Horpedahl said:
This type of increase and this high…we’ve never seen it before. We don’t know how large the effects will be on employment and cost of living. This is a 50 percent increase in labor costs for businesses over just a six year time period. No state has ever tried anything like that before. As an economist, that worries me that we’re kind of in uncharted territory. There’s a lot of potential downsides. If unemployment goes up a lot…if workers don’t get that first step on the job ladder, then they’re not going to have all the skills we need. We’ve had nine years of pretty good economic growth. We’re going to have a recession coming up pretty soon. If we’re implementing the highest minimum wage ever right in the middle of a recession, that can cause very big hardships for a lot of workers and families in Arkansas.”
For a short primer on the history and economics of the minimum wage, go here. Here is a summary of the views of the two economists Horpedahl mentions in his op-ed, who disagree about a lot regarding the minimum wage, but agree that very high minimum wages are largely have not been studied. As this working paper by Jason Briggeman indicates, the only research on very high minimum wages comes from US territories, but there is very little research and it’s hard to say if these small, undiversified economies are comparable to a state like Arkansas.