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F I S C A L I M P A C T R E P O R T
SPONSOR Altamirano
ORIGINAL DATE
LAST UPDATED
1/30/07
3/11/07 HB
SHORT TITLE Increase Statewide Minimum Wage
SB
324/aSFC/aHLC/aHBIC/
aHF1
ANALYST Francis
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)
FY07 FY08
FY09 3 Year
Total Cost
Recurring
or Non-Rec
Fund
Affected
$14.1
$49.0
$63.1 Recurring General Fund –
SPO
$253 $693.5
$946.5 Recurring
Jury and
Witness Fee
Fund
Total
(Parenthesis ( ) Indicate Expenditure Decreases)
SOURCES OF INFORMATION
LFC Files
Economic Policy Institute (EPI)
Employment Policies Institute
NM Department of Labor (DOL)
Responses Received From
NM Department of Labor (DOL)
Children, Youth and Families Department (CYFD)
Human Services Department (HSD)
Administrative Office of the Courts (AOC)
State Personnel Office (SPO)
SUMMARY
Synopsis of HFl Amendment
Senate Bill 324 as amended was amended on the House Floor. The amendment stripped away
the House Business and Industry and the House Labor and Human Resources committees’
amendments and amended the preemption date to 2010. Senate bill 324 as amended is now
virtually identical to the version that passed the Senate with the exception that the prohibition on
local governments increasing their minimum wages above the statewide (except Santa Fe) would
expire January 1, 2010, rather than 2013.
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Synopsis of HBIC Amendment
The House Business and Industry Committee amended Senate Bill 324 by striking many of the
House Labor and Human Resources Committee. The amendment restored the original
exemptions from the minimum wage (including the exemption for employees working for
ambulance services which Senate Finance had removed). The exemption regarding agricultural
and dairy workers in the original SB 324 was not restored by this amendment.
SB 324 is virtually identical in form now to House Bill 759. The main difference is SB324
retains current law exemptions from the minimum wage.
Synopsis of HLC Amendment
The House Labor and Human Resources Committee amended Senate Bill 324 in the following
ways which results in the bill essentially duplicating House Bill 759:
•
Strikes all exemptions from the minimum wage except the last one referring to
employees of charitable, religious or nonprofit organizations who reside on the premises.
(HB 759 struck this exemption).
•
Changes the phase-in to $6.50 effective July 1, 2007, and $7.50 effective January 1,
2008.
•
Adds a provision to index the wage beginning in 2009 by the consumer price index.
•
Strikes the entire section regarding local government preemption.
Synopsis of SFC Amendment
The Senate Finance Committee (SFC) amended Senate Bill 324 to remove the exemption for
persons employed by ambulance services.
Synopsis of Original Bill
Senate Bill 324 raises the statewide minimum wage to $6.50 in calendar year 2008 and $7.50 in
2009 and beyond. The bill exempts employees engaged in various agricultural and horticultural
activities, including milk production, from the minimum wage. Local governments are
preempted from passing a higher minimum wage until January 1, 2013, except for governments
who have already passed a local minimum wage. The minimum wage would apply to all state
and local government employees.
SB324 also addresses the wages for employees who depend on tips to keep the total wage, the
minimum $2.13 per hour plus tips, in line with the proposed minimum wage.
The effective date is January 1, 2008.
FISCAL IMPLICATIONS
Fiscal impacts for the minimum wage are difficult to determine. On the one hand, employees
who receive an increase because they have wages that are less than the proposed wage will
generate more income tax revenue and more gross receipts tax revenue as they spend their extra
income. Also, if they previously qualified for benefits targeting low income workers, than those
benefits may decline lowering the state’s appropriations. On the other hand, if employers feel
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3
they have to reduce their workforce, then those employees who are laid off will be paying less
tax due to their reduced income and likely need more publicly provided benefits. In the next
section there is more detail on the economic effects of increasing the minimum wage.
Different agencies have indicated specific operating budget items that are impacted by the higher
wage rate:
•
NM Department of Labor reports that there will be a fiscal impact on state and local
governments who will now be included in the minimum wage act.
•
The State Personnel Office (SPO) reports that there are 22 employees below $6.50 and 86
below $7.50. It will cost $14 thousand in FY07 and $49 thousand in FY08 to bring them
up to the minimum.
•
The Administrative Office of the Courts reports that they will need $253 thousand in
FY08 and $693.5 thousand in FY08 to for the jury and witness fee fund based on 375,000
hours of jury service in Fy06. They note that the LFC recommendation included an
increase of $412.5 thousand for jury costs in FY08.
SIGNIFICANT ISSUES
Data for this section is largely derived from an Economic Policy Institute (EPI) study on the
minimum wage that has been provided by the NM Department of Labor. More information
about EPI can be found on their website at
http://www.epinet.org
. EPI has gone through
unpublished data from the US Bureau of Labor Statistics (BLS) Current Population Survey
(CPS), a monthly survey of over 50,000 households, to develop the data in the tables shown here.
EPI is a non profit in Washington DC primarily funded primarily by foundation grants but also
by labor unions.
The Numbers. Table 1 shows the labor impacts of increasing the minimum wage to $7.50 per
hour. Twenty percent, or 161,000 of the 818,000, workers are likely to be affected with an
average raise of $0.78 per hour. About 47 percent of those affected are directly affected meaning
they are currently below the proposed minimum and will see an immediate increase of on
average $1.19 per hour. The other 53 percent are indirectly affected meaning they will see a
boost in wages as those below them on the pay scale get moved up. Almost 60 percent of those
affected are working full time and only 17 percent are under the age of 20. The occupations in
the service industry will be most affected with 37 percent of those employed in this industry
seeing almost $1/hour increase or over $2,000 a year for a full time worker. NMDOL reports
that the first phase to $6.50 per hour will affect about 40,000 directly.
Table 1: Affected workers in New Mexico
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Affected workers All workers
Affected workers All workers Average raise
Workers
161,000 818,000
20%
100% 100%
$0.78
Directly affected
75,000
47%
9%
$1.19
Indirectly affected
86,000
53%
11%
$0.42
Male
72,000 432,000
17%
45%
53%
$0.81
Female
89,000 385,000
23%
55%
47%
$0.75
White
69,000 408,000
17%
42%
50%
$0.84
Hispanic
70,000 312,000
23%
44%
38%
$0.72
20 years and older
134,000 779,000
17%
83%
95%
$0.72
Full-time (35+ hrs.)
95,000 669,000
14%
59%
82%
$0.68
Other industries
91,000 638,000
14%
56%
78%
$0.71
Service
51,000 138,000
37%
32%
17%
$0.96
Other occupations
81,000 596,000
14%
50%
73%
$0.67
Married
57,000 428,000
13%
36%
52%
$0.71
Source: Economic Policy Institute analysis of unpublished Current Population Survey data.
Number of workers
Share affected
Percent of total
Increasing the minimum wage is not without cost to business. The estimate of those costs are
controversial and often rely on anecdotes rather than statistics. However, most studies have
shown relatively minor impacts to business. EPI estimates that, not surprisingly, the leisure and
hospitality industry will be most impacted but the estimated impact is an increase of one percent.
For all workers, the increase is 0.2 percent as a share of sales. A report by the Employment
Policies Institute, a non profit in Washington DC that receives funding from the food and
restaurant industry reports that there is a negative employment impact particularly among
minorities.
Table 2: Cost to Business
Total annual
cost
Total annual
earnings
Total cost as
share of
earnings
Total annual
sales
Total cost as
share of
sales
W orkers
209
30,574
0.68%
103,381
0.20%
Directly affected
143
30,574
0.47%
103,381
0.14%
Indirectly affected
66
30,574
0.22%
103,381
0.06%
Retail trade
40
2,626
1.52%
26,019
0.15%
Leisure and hospitality
57
1,543
3.67%
5,679
1.00%
Other industries
112
26,405
0.43%
71,683
0.16%
All figures are in millions of dollars.
Source: Economic Policy Institute analysis of unpublished Current Population Survey data.
Last year when similar bills were being debated, LFC economists studied NM Department of
Labor data on employees by wage. Table 2 shows that even in the occupations with the highest
concentrations of low wage employees, the mean or average wage is near the proposed
minimum. In the “food preparation and serving" occupations, the mean wage was $7.36.
However, the mean includes higher paid restaurant managers and the more accurate variable is
the median wage or the wage at the 50
th
percentile. The median wage for this occupation, where
half of the workers are below and half are above, was $6.64 per hour indicating that more than
half of these workers will benefit. Overall, only two occupations have median wages below the
proposed minimum.
Table 2: Occupations with at least 10 percent of employees at less than $7.50 per hour
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Occupation
Employment
Mean
Wage
Hourly
Wage 10
th
Percentile
Hourly
Wage 25
th
Percentile
Hourly
Wage (50
th
Percentile)
Food preparation and serving
related occupations
72410 $7.36 $5.57
$5.97
$6.64
Farming, fishing, and forestry
occupations
4130 7.40
5.60
5.95
6.54
Building and grounds cleaning and
maintenance occupations
29710 8.79
5.85
6.69
8.08
Personal care and service
occupations
23150 9.01
6.07
7.16
8.80
Sales and related occupations
77390 12.47
6.02
7.14
9.50
Healthcare support occupations
20310 10.26
7.03
7.95
9.56
Transportation and material moving
occupations
45050 13.14
6.31
7.92
10.98
Arts, design, entertainment, sports,
and media occupations
6740 17.08
6.61
9.46
14.56
Office and administrative support
occupations
120510 12.29
7.16
8.89
11.32
Production occupations
31960 13.37
6.9
8.53
11.36
Source: LFC analysis of NMDOL Data
Children Youth and Families Department (CYFD) reports that raising the minimum wage would
have a “significant impact on the rates and depth of family and child poverty among working
families." NM is consistently ranked among the worst states for childhood poverty indicators.
Recent Studies. The Department of Finance and Administration (DFA) has provided summaries
of two recent studies of the effects of minimum wage laws:
Recent studies of minimum wage change consequences include a UNM Bureau of Business
and Economic Research study report of June, 2006 on the City of Santa Fe wage change in
June of 2004 from $5.15 to $8.50. This can be found at
http://www.unm.edu/~bber/pubs/SFLWpt3.pdf. This study followed Card and Krueger's
methods (described below) and found better economic performance post-wage increase in
Santa Fe than in a non-wage increase control area (Albuquerque).
A Florida International University study report of May, 2006 on the State of Florida wage
change in May, 2005, found at
http://www.risep-fiu.org/reports/Florida_Minimum_Wage_Report.pdf, found a lower
percentage increase in jobs in the service sector (hospitality, food service, accommodations)
than in the goods producing sector within Florida.
Private household employees. According to NMDOL, there were approximately 1,450 workers
employed by private households with an average weekly wage of $352. Assuming a 40 hour
work week, that means that these workers earn $8.80 per hour. These workers are excluded from
the minimum wage law under current law.
Federal legislation. The Federal government has imposed a minimum wage since 1938 when
the wage was set at $0.25 per hour. The wage has been increased 25 times since then most
recently in 1997 when the wage was increased to $5.15 per hour. Congress is now considering an
increase and both the US House of Representatives and the U.S. Senate have passed bills that
raise the minimum wage to $7.25 per hour but have not concurred on a bill that would go to the
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president. The Senate version contains several tax relief measures targeting businesses that might
be affected by an increased minimum wage. The congressional budget office (CBO), in an
analysis of the House version of the federal legislation, estimates that the impact on private
sector would be $1.5 billion in FFY2008 growing to $5.7 billion in FFY2010. The current GDP
estimate for FF2010 is $17,395 billion. In other words, CBO is estimating the impact will be
0.03 percent or virtually zero.
Indexing. One of the sticking points in the negotiations over the minimum wage is whether there
should be a cost of living increase or not. Adding an inflation index would allow the minimum
wage to keep pace with the general price level in the economy. Opponents of indexing argue
that annual increases in the minimum wage will encourage more inflation as the labor cost share
of goods and services rise. Ten of the twenty nine states with minimum wages higher than the
federal (see below) incorporate an inflation adjustment. Figure one shows the federal minimum
wage over time in 2004 dollars and nominal dollars. As the chart shows, the real wage is at its
lowest point since 1968 when the wage had the purchasing power of almost $9/hour in 2004
dollars.
Figure 1: Real and Nominal Minimum Wage
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Nominal $
December 2004$
Source: BLS; Real Wage adjus ted by CPI-W
Economic Theory. The impact of raising the minimum wage on employment is a hotly
contested issue among economists. Conventional theory states that an artificial floor for any
price is a market distortion and so will lead to an imbalance in the market, in this case dis-
employment. Most economists believe that increases in the minimum wage cause
unemployment amongst some groups, particularly low skilled and younger workers. At issue,
then, is not whether there is unemployment but how significant is the unemployment that is
caused by the wage increase and how is it offset by other positive impacts. The key to the
argument is the elasticity of the demand for labor. In other words, how employers respond to
changes in the wage. At very low wage levels near the federal minimum, there is evidence that
employment is not significantly impacted by small changes in the wage.
The market wage is where supply of labor equals demand for labor and the market clears. If the
market wage is higher than the minimum, the effects of the minimum wage will be on the
margins and therefore not likely to be significant. If the natural wage is lower than the minimum
wage, supply of labor will exceed demand for labor and unemployment will result. The average
wage, which is a rough proxy for the natural wage, in most industries is significantly above the
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current minimum wage and the proposed wage and so there will be little to no employment
impact.
One way to assess the real impact of a minimum wage is to look back on previous minimum
wage hikes to see if there were significant impacts on employment. In 1997, for example, the
federal minimum wage was increased to $5.15 but the economy was at the beginning of a boom
where all levels of workers, including low skilled and unskilled, enjoyed employment and wage
gains. Studies of the 90-91 federal minimum wage increase found no measurable impacts on
employment. One of the arguments is that by the time political pressure mounts to actually
increase the minimum wage, the economy has largely moved on without the legislation and the
new minimum wage is merely increased to the new floor wage rather than increasing the floor
wage.
One concern of businesses that pay wages around the proposed minimum wage is that when a
new floor is set by raising the minimum wage, current employees’ wages who are paid at or near
that new level will need an increase. This will increase the costs to business even more than just
the hiring of new people at the new wage. A University of California-Berkeley Institute of
Industrial Relations study in September 2005 on the California minimum wage indicated that the
impact on business was similar for the indirect impact of wage increase for employees currently
at or near their minimum wage. However, they also indicate that the combined impact is
estimated to increase business operations costs by 1.3 percent, very similar to the results reported
by EPI above.
Other states. Table three shows all of the states and their minimum wage laws. Twenty-nine
states now have a higher minimum wage than the federal. Ten of those adjust the wage for
inflation as HB759 is proposing.
Table 3: Minimum Wage Laws in the States
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Source: Economic Policy Institute
DFA has provided a summary of positions by supporters and opponents of minimum wage laws:
Supporters of the minimum wage claim it has these effects:
•
Increases the average living standard.
•
Reduces worker exploitation.
•
Can increase the economic efficiency of the economy where labor markets exhibit a high
degree of market power on the part of employers.
•
Stimulates consumption, by putting more money in the hands of low-income people who
spend their entire paychecks.
•
Stimulates economic growth by discouraging labor-intensive industries, thereby
encouraging more investment in capital and training.
•
Increases the work ethic of those who earn very little, as employers demand more return
from the higher cost of hiring these employees.
•
Decreases the cost of government social welfare programs by increasing incomes for the
lowest-paid.
•
Prevents in-work benefits (e.g. the Earned Income Tax Credit and the Working Tax
Credit) from causing a reduction in gross wages which would otherwise occur if labor supply
is not perfectly inelastic.
•
Provides a "shock" which forces employers to use a high productivity strategy rather than
a high labor turnover strategy, therefore improving the stock of human capital in an
economy.
•
Creates incentive to work (contrast with welfare transfer payments).
•
Minimum wage is administratively simple; workers only need to report violations of
wages less than minimum, minimizing a need for a large enforcement agency.
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Opponents of the minimum wage claim it has these effects:
•
Reduces demand for workers. This may manifest itself through a reduction in the number
of hours worked by individuals, or through a reduction in the number of jobs.
•
Reduces profit margins of business owners employing minimum wage workers.
•
Increases prices for customers of employers of minimum wage workers, which would
pass through to the general price level.
•
Reduces economic growth by skewing factor-choice incentives away from the optimum
choice.
•
Decreases opportunities for low-skilled workers to gain the training and responsibility
they need to move up the wage ladder.
•
Increases the cost of government social programs due to assistance programs aiding the
laid-off workers.
•
Is less effective at reducing social exclusion than some other alternatives, for example
training programs.
•
Is less effective than the Earned Income Tax Credit at targeting the truly needy, and is
more damaging to businesses.
•
Decreases human capital by encouraging people to enter the job market instead of
pursuing further education.
•
Reduces the international competitiveness of a nation by raising the cost of factor inputs,
and therefore output, relative to the level of other countries. It is argued that this is
particularly problematic in developing economies.
•
Is a limit on the freedom of both employers and employees. Minimum wage laws make it
illegal for employers to pay workers less than the minimum wage
PERFORMANCE ISSUES
The Administrative Office of the Courts reports that some of their performance measurements
may be affected if the increased wage interferes with their ability to conduct jury trials
effectively. These increased costs are reflected in the table “Operating Impacts".
Human Services Division believes there will be no fiscal impact. Some low-wage recipients of
food stamps and other public assistance may have benefits cut but the loss will likely be offset by
the increase in wages.
ADMINISTRATIVE ISSUES
The Administrative Office of the Courts indicates that the Jury and Witness Fee Fund is not
sufficient to absorb the increase in payments to jurors and will seek supplemental funding for the
fund.
There will have to be an extra effort on the part of the Department of Labor to verify the
eligibility of workers who should receive the minimum wage.
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
If the federal government passes a minimum wage without passage of this bill, the state
minimum wage will be lower than the federal. This would affect a small group of employees
who are not covered by the federal minimum wage.
NF/nt