LITTLE ROCK — Arkansas is likely to have the highest effective minimum wage in the country soon, setting up a grand experiment in whether a high minimum wage in a poor state can raise workers out of poverty — or derail the state’s economy.
Voters in Arkansas on Election Day overwhelmingly approved a minimum-wage increase to $11 an hour by 2021. Given the state’s low cost of living and modest salaries, entry-level workers will soon be better off financially in Arkansas than in places such as California, New York and the District of Columbia that are hiking their minimum wages to $15 an hour.
By 2021, a minimum wage worker in Arkansas will earn nearly 70 percent as much as the median worker in the state, according to analysis by Jeremy Horpedahl, assistant professor of economics at the University of Central Arkansas. For that to be true in the District of Columbia, the minimum wage would have to be $23 an hour.
There is widespread agreement among economists that raising the minimum wage too high would cause job losses, but no one really knows what amount “too high” is. Evidence so far suggests there have been few, if any, job cuts in places where entry-level wages have risen.
Now, Arkansas has set up a large-scale test case: Will the pay hike lift people out of poverty in the sixth poorest state? Or will it be a “job killer” as popular Republican Gov. Asa Hutchinson warned? About 300,000 workers are expected to get raises because of the changes.
Business owners in Arkansas are deeply divided about it, but voters sent a clear message: 68 percent voted in favor of the ballot initiative to increase the minimum wage. On a night when Republicans swept all the key races in Arkansas, this was the only issue that didn’t go their way, a result that didn’t go unnoticed by progressive activists in surrounding states, which almost all have $7.25 an hour minimum wages.
“I voted for it. I’m very proud of Arkansas for this,” said Capi Peck, the longtime owner of Trio’s Restaurant in Little Rock. “Voters sent a very progressive message on wages in a state that is not very progressive.”
When Peck spoke out in favor of the hike, the blowback was swift from some fellow restaurant owners who feared they would have to raise prices, cut staff or maybe even close their doors. Servers aren’t impacted by the minimum wage increase, but dishwashers and cooks are.
Peck has 50 employees and starts people out at $9.50, a dollar above the state’s current minimum wage of $8.50. She knows she will have to raise her pay as the minimum wage goes up to $9.25 in January, $10 in January 2020 and $11 in January 2021, but she says after three decades in the restaurant industry, she’s learned how to adjust ingredients to manage costs or raise prices when she has to. “Nobody is going to be put out of business by this,” she said.
Unlike Peck, Jerry Glidewell woke up Wednesday worried. As executive director of the Fort Smith Boys & Girls Club in northwest Arkansas, Glidewell is on the front lines of helping struggling families. But most of the people he employs to run the basketball, football, cheerleading, mentoring, tutoring and other youth programs are part-time high school and college students whom he pays $8.50 an hour.
Glidewell estimates the minimum wage increase is going to add $30,000 in extra costs to his lean budget. He figures his best case scenario is to fundraise to meet that additional cost, but if he can’t get it, he’ll have to cut programs or ask needy families to pay more for their children to play sports.
“We’re looking at $30,000 more in our budget. That might not sound like much, but when you run on pennies, and insurance and rent go up every year, it hurts,” said Glidewell, who has worked at the club since 1982. He says he’s sympathetic to workers wanting more money because he started out working at the Boys & Girls Club for minimum wage when he was in college.
“Obviously, I want it to be good to them, but I hate to have to pass on cost to poor families that can’t afford to get by now,” said Glidewell.
Other small business owners in Arkansas say this minimum wage increase is making them look into ways to automate more of their work to keep costs down so they can remain competitive.
“We have already identified things we can automate, which means less employees,” said Jackie Fulton, a business owner in Paragould, Ark. “We have to compete globally. We’re competing constantly against places like Mexico for jobs like what we do.”
Fulton is involved in a packaging company and he says he saw a spike in inquiries from businesses in the Seattle area after that city raised its minimum wage to $15 an hour this year. “Business are leaving their sales office in Seattle and moving their production and packaging inland,” he said.
Seattle has been a big test case in the push to increase the minimum wage around the country, and Arkansas is likely to draw that kind of attention soon. Researchers at the University of Washington found in a recent study that the city’s higher wages have lifted pay, but worker hours have been cut as a result. The left-leaning Economic Policy Institute criticized the study, arguing the job losses were negligible and probably caused by the rapid rise in pay in the city because of Seattle’s economic and tech boom.
A study by U.S. Census researchers found substantial evidence that low-income workers see a rise in earnings after a minimum-wage increase, and their financial situations continue to improve for several years. But they found inconclusive evidence about whether jobs are lost or hours scaled back to part time in places that have raised wages.
The federal minimum wage of $7.25 an hour hasn’t increased since 2009 and is worth substantially less than the minimum wage was in the 1960s once adjusted for inflation, according to the Economic Policy Institute.
Ballot initiatives across the country to raise the minimum wage in states and cities have passed with broad public support. There hasn’t been a single loss on this issue since 1996, so some were not surprised to see the result in Arkansas. But what makes Arkansas stand out is that no other red state has gone this high.
Arizona was the only red state above $10 before this week’s election. Now Missouri and Arkansas are on their way to joining those ranks.
By 2021, Arkansas' $11 an hour minimum wage would be 69 percent of the state’s median wage, according to Horpedahl. That means that, unless Arkansas experiences a jump in median wage gains that far outpaces other states, the gap between entry-level pay and middle-class pay will be smaller there than in any other state in the nation.
Few expected Arkansas to be a leader on pay.
The state, the former home base of Bill and Hillary Clinton, has become deeply red since the financial crisis. Republicans dominate state politics now. But the strong support for the minimum wage increase is another sign of populist policies doing well at the expense of the traditional business wing of the GOP.
“While we are a Republican state, we are not an Alabama Republican state. We are more compassionate conservative,” said David Couch, the lawyer that fought to get the minimum wage increase on the ballot.
Business groups like the Arkansas Chamber of Commerce and Arkansas Oil Marketers Association, which represents gas stations and convenience stores, and various hospital, tourism and restaurant interests tried to fight the wage hike. They challenged the ballot initiative in court and lost.
Money poured in from outside the state — $1.5 million — to help Couch run ads on TV in the state’s two main media markets and mail fliers in some poorer neighborhoods in the state. The main backers of Arkansans for a Fair Wage, which Couch started, were the Sixteen Thirty Fund, the Fairness Project and the National Employment Law Project.
But Couch says the main strategy was to fly under the radar. There was far more attention this election cycle to a ballot initiative over whether to open casinos in Arkansas. He felt confident his issue would win, especially after a minimum-wage increase to $8.50 passed in 2014 with 66 percent of the vote and he began hearing support from some business owners.
“We’re willing to take the hit financially. Ultimately what we’d like to see is to get to a place where our employees are paid $15 an hour,” said Jacqueline Smith, co-owner of the restaurant WunderHaus in Conway, Ark.