TITLE: RAISING FLORIDA’S MINIMUM WAGE
PLACED BY: Citizens’ Initiative, Florida For A Fair Wage
BALLOT SUMMARY: “Raises minimum wage to $10.00 per hour effective Sept. 30, 2021. Each Sept. 30th thereafter, minimum wage shall increase by $1.00 per hour until the minimum wage reaches $15.00 per hour on Sept. 30, 2026. From that point forward, future minimum wage increases shall revert to being adjusted annually for inflation starting Sept. 30, 2027.”
A YES VOTE MEANS: The current minimum wage of $8.56 per hour will increase to $10.00 per hour effective Sept. 30, 2021; thereafter will increase to $11.00 per hour on Sept. 30, 2022, $12.00 per hour on Sept. 30, 2023, $13.00 per hour on Sept. 30, 2024, $14.00 per hour on Sept. 30, 2025, and $15.00 per hour on Sept. 30, 2026.
A NO VOTE MEANS: The minimum wage of $8.56 per hour will remain through the end of 2020 and will be adjusted annually based on the federal Consumer Price Index for Urban Wage Earners and Clerical Workers in the South Region.
Supporters of Amendment 2 assert that the incremental increase to a $15 minimum hourly wage will stimulate the economy, business activity, and job growth.
By helping to ensure that all Floridians receive a “living wage,” a $15 minimum hourly wage will reduce dependence on safety net programs, such as Medicaid.
By increasing the minimum hourly wage incrementally, Florida employers will be better able to absorb the increase, with only modest increases in business costs.
Opponents of Amendment 2 maintain that the higher labor costs associated with the incremental increase to a $15 minimum hourly wage will likely force layoffs, reduce employee hours, and/or increase prices to consumers.
These unintended consequences will harm many of those who the increased minimum hourly wage is designed to help, particularly young and minority workers.
Economic research suggests that raising the minimum hourly wage to $15 will help stimulate the economy, business activity, and job growth because employees will have more discretionary income. As wages increase, consumer spending will likely increase as well.
Although a phased-in $15 minimum hourly wage would generate a significant increase in living standards by lifting thousands of Florida workers and their families out of poverty, there is no guarantee that those who are earning the minimum hourly wage and living above the federal poverty level are making a “living wage.”
In fact, using the Massachusetts Institute of Technology’s living wage calculator, even if the minimum hourly wage in Florida was $15 today, the only $15 minimum hourly wage-earning household scenarios that would enjoy a living wage would be:
(1) a household with a single adult earning a $15 minimum hourly wage, with no children; or
(2) a household with two adults, both of whom work and earn a $15 minimum hourly wage, with one or no children.
An employee’s total compensation includes wage (e.g., salary) and non-wage (e.g., health care coverage, retirement contributions, etc.) components. Wages are taxed. The non-wage components of an employee’s total compensation are not taxed. In those instances where an employer reduces the non-wage portion of an employee’s total compensation to offset increasing the wage portion brought about by the increase in minimum hourly wage, low-wage employees would pay higher taxes on the same amount of total compensation, making them worse off.
As wages increase and more and more full-time working Floridians earn enough money to live above the federal poverty level, fewer full-time working Floridians will need safety net programs to help meet their basic needs and public expenditures on these programs will be reduced.
Increasing the hourly minimum wage to $15 will affect small businesses more significantly than large businesses. Small businesses are more likely to experience the negative impacts of a $15 minimum wage because they are less likely to have the cash reserves or profit margins to absorb the increase in labor costs than larger businesses.
This is important because Florida is home to 2.5 million small businesses. These small businesses employ 41.6 percent of all private sector employees and represent nearly 44 percent of Florida’s Gross Domestic Product (GDP).
Further, nearly three of every four new jobs in Florida are created by these small businesses. Larger companies are better positioned to absorb the impacts of a $15 hourly minimum wage without having to increase the prices paid by consumers.
Larger companies use the higher minimum wage to attract, train, and retain a more highly skilled and diverse workforce to better serve their customers.
Larger companies can often absorb these costs through economies of scale, such as centralized back office functions (e.g., information technology, legal, and human resources) and job consolidation and reduction.
Further, larger companies can use increased minimum hourly wages to “tip the scale” against their smaller competitors. Increasing the minimum hourly wage to $15 would force smaller businesses to match higher starting wages currently paid by larger companies. This places the smaller businesses at an additional unfair competitive disadvantage.
Increasing the minimum hourly wage to $15 will also adversely impact Florida’s agricultural industry. As farm wages increase, many agricultural workers will likely lose their jobs as a result. As farm labor costs increase, so too will the prices paid by consumers. Florida farmers are competing not only with states that have lower minimum hourly wages (nine out of 12 southern states do not have state minimum hourly wages above the federal minimum), but with other countries that have little or no regulations governing farm labor.
Raising the price of farm products is likely to invite the importation of more farm products from other countries which, in turn, will likely reduce the number of agricultural workers in Florida.
The economic impacts of a $15 minimum hourly wage are not limited to businesses. Raising the minimum hourly wage to $15 will increase the costs of providing government services, with local school districts expected to face the greatest annual cost increases.
Almost all of the options available to state and local government agencies to mitigate the impacts of these increased wage costs require some combination of reduced number of employees and/or reduced number of hours worked. The shift toward increased expenditures on wages will likely mean that other budget items (e.g., expenses, operating capital outlay, etc.) will likely have to be reduced unless additional revenue streams, such as increased fees and taxes, are enacted.
Another possible but unknown impact of the incremental minimum wage increase on government is the effect on sales tax collections. On one hand, new minimum wage employees will have more discretionary money to spend, which will likely drive up sales tax collections. On the other hand, increased prices on some goods and services will likely drive down some sales, possibly offsetting the increase in sales tax collections.
Economic research shows that employee morale and work ethic increase when employees believe they are being paid a fair wage.
Increasing the minimum hourly wage has also been shown to reduce employee turnover which, in turn, reduces the employer’s cost to recruit and train low-wage employees. When employees are paid a higher wage, absenteeism (for reasons other than illness) is reduced, which also leads to higher productivity.
Studies also acknowledge that some of the observed boost in workers’ earnings as a result of the higher wages would be offset by higher rates of joblessness.
Increasing the minimum hourly wage creates an incentive for businesses to reduce the number of low-productivity workers and the number of employment hours assigned to low-productivity workers.
An analysis conducted by Regional Economic Consulting Group (RECG) for Florida TaxWatch estimates the costs of maintaining the pre-pandemic levels of employment in compliance with the proposed increased minimum hourly wage. The RECG analysis shows that maintaining the same number of employees that exists today with a minimum hourly wage of $15 will cost Florida businesses more than $7.3 billion annually.
The largest impact will be on employers in food preparation and serving industries. Absorbing this $7.3 billion impact will force Florida employers to consider some combination of employee layoffs, reduced number of hours worked, raising prices paid by consumers, or reduced operating profits.
Economic research consistently finds that businesses pass minimum wage costs on to their customers through price increases, so consumers, not business owners, will likely bear a significant portion of the cost burden of a $15 minimum hourly wage.
Increasing the minimum hourly wage to $15 may force many small business owners to lay off workers with the least experience and skills and that generate the lowest value, typically workers under 20 years of age and part-time employees. Those full-time employees with more skills and experience are usually the last to go if an employer needs to cut hours or lay off employees.
With fewer entry-level jobs, lower-skilled and inexperienced workers will find it more difficult to find a job that provides them with much-needed experience. The unintended consequence is that increasing the minimum hourly wage to $15 hurts the very population it was intended to help.
Minimum wages raise prices disproportionately more on the poor and older Floridians living on a fixed income. Accounting for higher prices shows that minimum wage increases transfer few resources to low-income families. Some low-income families benefit from higher wages, but many more low-income families and older Floridians living on fixed incomes are hurt by higher prices.
The cost of the economic slowdown and disruption due to COVID-19 is a heavy burden on Florida businesses, especially small and medium-sized businesses that make up the backbone of Florida’s economy. The economy faces a difficult recovery to get back to pre-pandemic levels. Increasing the minimum hourly wage before the economy is functioning at full capacity places an extraordinary and undue burden on Florida businesses and taxpayers. In light of COVID-19, the price tag associated with increasing the minimum hourly wage to $15 is simply too expensive.
Section 100.371, Florida Statutes, requires the Financial Impact Estimating Conference (FIEC) to adopt and prepare a financial impact statement for any proposed constitutional amendment that has been placed on the ballot through the citizens’ initiative process. The FIEC has prepared and adopted the following financial impact statement for Amendment 2:
“State and local government costs will increase to comply with the new minimum wage levels. Additional annual wage costs will be approximately $16 million in 2022, increasing to about $540 million in 2027 and thereafter. Government actions to mitigate these costs are unlikely to produce material savings. Other government costs and revenue impacts, both positive and negative, are not quantifiable.”
Approval of Amendment 2 will create some winners and some losers. The winners include those who get higher wages with no concurrent reduction in employment or hours worked. Those households with incomes currently below the federal poverty level that will be lifted out of poverty also win. Fewer full-time working Floridians will need safety net programs to help meet their basic needs, which should help to reduce the costs of operating these programs.
Larger companies may benefit from being better positioned to absorb the impacts of a $15 hourly minimum wage without having to increase the prices paid by consumers. Forcing their small business competitors to match higher starting wages currently paid by some larger companies creates an unfair competitive disadvantage for smaller companies. It is no surprise then that so many large companies in Florida have either raised their minimum hourly wage to $15 or are in the process of raising the minimum hourly wage to $15.
The losers include those low-wage employees who lose their job and then find it more difficult to find a new job, or who have their work hours reduced. The higher minimum hourly wage may discourage businesses from employing the low-wage workers that the increased minimum hourly wage is intended to help. Higher minimum wages also incentivize and accelerate automation of work, with corresponding permanent job losses.
Small businesses will struggle to keep up with their larger competitors, who can more easily absorb the impacts of the increased minimum wage without raising prices. Consumers, especially older Floridians living on a fixed income, will be affected the most by inflation and higher prices.
Other losers include state and local governments, which will have to absorb not only increased labor costs of their own employees, but also the increased labor costs of private contractors and vendors who provide contracted services.
Voters must also consider the impact of the increased minimum hourly wage on Florida’s economic recovery.
The cost of the economic slowdown and disruption due to COVID-19 places a heavy burden on Florida businesses, especially small and medium-sized businesses that make up the backbone of Florida’s economy. As of this writing, Florida’s unemployment rate is in the double digits (11.3%) and at an all-time high.
The economy has a long and painful set of challenges ahead to get back to pre-pandemic levels, without adding pressure to the system. Increasing the minimum hourly wage before the economy is functioning at full capacity places an extraordinary and undue burden on Florida businesses and taxpayers. Until the state economy fully recovers and is operating at full capacity, the price tag associated with increasing the minimum hourly wage to $15 is simply too expensive.
For Florida’s economy to function well, all Floridians must share in the success and wealth that results from the hard work of Florida taxpayers. This is very unlikely to happen if the minimum hourly wage increases to $15.
FOR THESE REASONS, FLORIDA TAXWATCH RECOMMENDS A “NO” VOTE ON AMENDMENT 2.