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What the minimum wage bill means for Delaware

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Dr. John E. Stapleford

Dr. John E. Stapleford
Guest Columnist

On Jan. 26 the Delaware State Senate passed a bill that would increase the minimum hourly wage in Delaware by 50 cents per year for the next four years beginning June 1.

This would result in a 24.2 percent increase in the minimum wage over the next four years. By comparison, over the most recent four years, the median hourly wage for Delaware workers across all occupations has risen 4.5 percent (3.6 percent for dishwashers), while inflation in the Philadelphia region rose 13.2 percent (BLS, OES).

The minimum wage is established by federal, state or local government statute. The current federal minimum wage is $7.25. As of 2015, 29 states had a minimum wage set higher than the federal level, including Delaware’s $8.25. All but one of the nine states with a minimum wage equal to or below the federal minimum are in the Southeast. Pennsylvania is the only neighboring state with a minimum wage set below Delaware.

A handful of major cities have passed statutes that gradually increase the minimum wage to $15 per hour. At the same time, employers may pay tipped labor $2.13 per hour, and workers in some U.S. territories are exempt from the federal minimum.

Because it is adjusted only periodically, even with the current low inflation, the purchasing power of the minimum wage tends to fall steadily in the years following each adjustment. Today the purchasing power of the federal minimum wage is 5 percent below what it was in 1984.

Thus there is a growing sentiment among politicians that it is time for another statutory increase in the minimum wage.

The implications for business?

Nationally only 2.9 percent of workers earn the federal minimum wage. This translates into about 13,000 workers in Delaware. The current slightly higher Delaware minimum wage would bring about 2,000 more workers into play.

Across the United States more than half of minimum-wage workers are between ages 16 and 24. Two-thirds of minimum-wage workers are part time. And two-thirds of minimum wage workers earn wage raises within a year.

Four-Year Change in Proposed Minimum Wage and Delaware Median Hourly Wages 

Only a minority of minimum wage earners are heads of families and/or single parents working full time. As a consequence, while raising the minimum wage does reduce poverty, the effect is modest and there are far more effective anti-poverty programs.

There is universal agreement that raising the minimum wage causes a reduction in employment. Liberal research groups report that these job losses are moderate while conservative organizations find more dramatic losses as employers quickly move to reduce labor costs.

Applying the methodology used recently by the Congressional Budget Office, an increase in the Delaware minimum wage to $10.25 per hour (in the next four years) would result in a net loss of around 600 jobs.

Since the 2007-08 recession the Delaware labor market has been a “buyers” market with average wages lagging inflation. Delaware has no right-to-work law and the state government has already increased taxes on business. A 24 percent mandated increase in the minimum wage reinforces the state’s “anti-business” image.

A more reasonable approach would be to follow the lead of 15 other states and simply index the Delaware minimum wage to the annual changes in the cost of living.

This would sustain the supply of entry level jobs in Delaware, put minimal pressure on businesses to raise prices to cover higher labor costs, and bolster consumer spending by young people and less skilled workers.

John E. Stapleford is the director of the Center for Economic Policy and Analysis for the Caesar Rodney Institute and works as an associate director and senior economist with Moody’s Economy.com.

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