How would a proposed minimum wage increase effect Maryland’s economy?


Members of the Raise Maryland coalition, who hope to increase the state's minimum wage from $7.25 to $10 per hour, rally in Annapolis. (Erin Cox/BALTIMORE SUN)
January 27, 2013

Maryland lawmakers last week proposed to incrementally raise the state’s minimum wage to $10 per hour from $7.25 by 2015, a measure that, if passed, would represent the first increase in the state’s minimum wage since 2007.

Depending on who you ask, the plan could propel Maryland’s economic recovery or smother it.

Supporters argue that such an initiative would put more money in wage earners’ pockets that would then be spent at local businesses. Opponents contend that it would it force business owners to trim jobs and make Maryland’s business climate less competitive with neighboring jurisdictions. Economists, meanwhile, have varied and nuanced views of how such a change might play out.

The bill is not among Gov. Martin O’Malley’s (D) priorities for this legislative session, so it may be difficult for it to gain momentum among lawmakers. But it still raises questions about the best path forward for boosting Maryland’s economy at a time when its job growth has been tepid and its unemployment rate has ticked up from 6.5 percent in January of 2012 to 6.6 percent in November.

Maryland’s current minimum wage, $7.25, is the same as the federal minimum wage and Virginia’s. It is lower than the District’s minimum of $8.25. After hitting $10 in 2015, the Maryland wage floor would thereafter be indexed to inflation, meaning it would fluctuate along with the cost of living in the state.

State Senate Majority Leader Robert Garagiola (D-Montgomery), who introduced the plan last Tuesday, said he sees it as a step toward closing the widening income gap.

“First and foremost, it’s a middle-class, working families bill,” Garagiola said.

Proponents also contend that a wage increase would benefit the region’s retail and hospitality businesses, because it would give the estimated 320,000 Maryland minimum-wage workers an infusion of disposable income.

“Low-wage workers, more than anyone else, when they get a raise, they spend it,” said Ari Weisbard, advocacy manager at the D.C. Employment Justice Center.

But that’s where it gets complicated, said Stephen S. Fuller, an economist at the Center for Regional Analysis at George Mason University. When businesses are forced to increase their payroll budgets, they have to find a way to offset that cost. And many times, that’s achieved by raising prices. And so even though low-wage workers may have more income, their dollars (and other consumers’ dollars) may not stretch as far if prices are bumped higher.

If the business doesn’t pass on a cost increase to the consumer, then it could also consider trimming its workforce. This is one reason why the Maryland Chamber of Commerce said it is likely to oppose the minimum wage proposal.

“It ends up putting pressure on the business owner who has to actually pay for these increases,” said Kathy Snyder, the chamber’s chief executive.

The chamber also argues that a higher minimum wage makes Maryland less competitive with nearby states and the District. Anirban Basu, chief executive of Sage Policy Group, an economic consulting firm in Baltimore, agrees the proposal would put Maryland at a disadvantage when it comes to attracting new businesses.

If it were to go into effect, “It’s a big win for Virginia,” Basu said.

Still, advocates of the legislation suggest that it doesn’t threaten Maryland’s competitiveness.

Jack Temple, a policy analyst for the National Employment Law Project, points out that a large share of minimum-wage workers are in the service sector, and many of those jobs are not the kind that can be easily uprooted and moved to other jurisdictions. For example, restaurants can not move en masse to Virginia or the District; they must be close to the customers that patronize them.

There is also some research to suggest that raising the minimum wage does not create a drag on job growth, but it doesn’t boost it, either. Michael Reich, the director of the Institute for Research on Labor and Employment at University of California-Berkeley, conducted a study in which he looked at the employment picture in counties that shared a border but were located in states with different minimum wage levels.

He found that a minimum wage hike did not result in jobs being slashed. Instead, the study showed that such a policy had no net effect on job growth in the region.

Reich did find, however, that a minimum wage increase reduced employee turnover, and in turn, cut companies’ costs for recruitment and training.

Washington Post staff writer Aaron C. Davis in Annapolis contributed to this report.

Sarah Halzack is The Washington Post's national retail reporter. She has previously covered the local job market and the business of talent and hiring. She has also served as a Web producer for business and economics news.
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