A $15 Minimum Wage in Florida Will Cost Jobs
January 5, 2021
Revised January 13, 2020
In the 2020 general election, Florida voters blindly jumped on a national bandwagon and approved Amendment 2 to the state constitution raising the minimum wage to $15 per hour by a narrow margin of 60.8 percent for to 39.2 per cent against (the constitutional hurdle for passage is a 60 percent approval).
This amendment will increase the minimum wage from $8.56 in 2020 to $10 on September 1, 2021, and by an additional dollar per year until reaching $15 in September 2026 (with comparable absolute increases for tipped employees whose minimum wage is $3.02 per hour less). This constitutes a hefty increase of over 75 per cent and will produce the highest minimum wage ever implemented by a ballot measure.
The minimum wage increase will make Florida only the eighth state to increase its minimum wage to $15 an hour and will put it in the same category as the high wage states of California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, and New York, even though Florida's average weekly wages in second quarter of 2020 only ranked 29th in the country, putting it far behind all these high wage states in pay levels.
The increase in the minimum wage is a prime example of a a ballot measure that was implemented hastily without an adequate consideration of the full implications of its economic consequences for the various local labor markets making up the Florida economy.
Over the years, the high relative rate of growth of Florida's population and employment has been driven by its relatively low wages. Retirees and tourists have been drawn to Florida by the availability of cheap services as well as the weather. Florida's agricultural industries have always been dependent on the availability of low-wage labor. Much of this growing demand for unskilled labor was met by immigrant workers from Latin America and the Caribbean who were willing to work for what were relatively low wages by American standards, but high in relation to their countries of origin. And now that family networks have been established, they will continue to come expecting to find jobs, even if the jobs become less available and harder to find as a result of the increase in the minimum wage.
Employers who are required to pay higher wages will seek ways to use less labor and will consequently provide fewer jobs. This will make it more difficult for immigrants as well as young people leaving school to find entry level jobs and to break into the labor force.
The extent to which the minimum wage increase will eliminate jobs depends on the relationship between the minimum wage and market clearing wages in the local labor market. That is why a $15 per hour minimum wage will do less, if any, damage in high wage jurisdictions like California and New York and the other Northeastern states that have already announced scheduled increases in the minimum wage to $15. It also will have relatively little impact on workers who have greater skills and experience and are employed in larger corporations and professional firms where employees are salaried.
If the minimum wage is below the market clearing wage in all the local labor markets, it will have no impact on labor demand. However, if it is above the market wage in some local labor markets for occupations or industries, microeconomics tells us that it will reduce labor demand in the affected industries and occupations because it will raise the wages paid above the marginal value produced by the workers at the previous higher level of employment.
This is the description usually provided in introductory economic textbooks of how an increase in the minimum wage works in a partial equilibrium model of supply and demand in a particular labor market. However, there is some disagreement among economists on the impact of minimum wage increases in more general equilibrium and Keynesian macroeconomic models incorporating national or, even state, labor markets.
Some economists believe that increases in minimum wages can also push up the wages of workers at the bottom of the wage scale because productivity can be boosted for workers earning above the minimum wage if they take over some of the work done by the displaced workers. In addition, others believe that, to the extent that wages are determined based on relative contributions rather than the absolute marginal value of product produced by the worker, an increase in the minimum wage can boost wages more generally at the bottom of the wage scale, raising incomes and purchasing power. There is also the possibility of shifting increases in wages forward through price increases. All these broader considerations becloud the analysis of the impact of minimum wage increases, particularly if the increases are small.1 However, there is more agreement among economists that a large increase in the minimum wage, like that introduced in Florida, will have a significant negative effect on the employment of low-wage workers.2
The greatest percentage reductions in employment can be expected to occur in those smaller predominantly rural counties of Florida in the Panhandle and center of the state with wages under 70 per cent of the state average and the fewest alternative employment opportunities (Chart 1 and Table 1). It is there that employers will have the most incentive to cut jobs. Large, urbanized counties like Palm Beach, Miami-Dade, Broward, Hillsborough, and Duval with thriving, dynamic economies will be less affected because of their higher wage structures. However, all counties in Florida have significantly lower wages than the average for the United States, which is 15.1 per cent higher. The comparison is even more striking with the high wage states in the Northeast and on the West Coast. For example, the average weekly wages in New York are almost 50 per cent higher than in Florida. While an increase in the minimum wage to $15 per hour may not do much harm in the New York, a state like Florida with low wages is much more likely to suffer serious economic damage and substantial job losses, particularly in low-wage, largely rural counties.
The differential impact of the increase in the minimum wage across the state goes a long way towards explaining why Amendment 2 raising the minimum wage got enough votes to pass. Over 70 percent of the vote in favor came from the three large, urbanized counties of Miami-Dade, Broward, and Orange counties where the impact would be less. In contrast, the small rural counties of Calhoun, Lafayette, Gilchrist, and Baker, which have wages less than 70 per cent of the Florida average and would be hit hardest by the minimum wage increase, voted around 65 per cent against the Amendment.3
The different circumstances in Florida compared to other higher wage states and among the diverse Florida counties is the reason why an across-the-board increase in the minimum wage is not a sound economic policy decision for Florida. A referendum sparked by the national push for a $15 minimum wage may have appealed to the hearts of Florida voters, which were opened by the national news media's uncritical promotion of the benefits of increased minimum wages. However, most Floridians were probably not fully aware of the likely larger negative impact on employment in the Sunshine State and especially of the adverse effect on rural Florida counties. Economic policy should be made with our heads, not our hearts.
Covered employment and wages in the United States and all counties in Florida, second quarter 2020
|June 2020||Wage||(% of FL Avg)||United States||148,556,525||$1,188||115.1%|
Note:Preliminary data for second quarter 2020.
Source: Source: https://www.bls.gov/regions/southeast/news-release/countyemploymentandwages_florida.htm#qcewflchart1
1. John Wihbey, "Minimum wage: Updated research roundup on the effects of increasing pay," Journalist's Resources, Harvard Kennedy School, July 27, 2016.
2. Michael R. Strain, "A $15 minimum wage would wreck US economic recovery," Bloomberg, October 20, 2020.
3. Tampa Bay Times Editorial Board, "How Florida wound up with a $15 minimum wage | Editorial," Nov. 4, 2020.
This article explores and updates themes from Florida Dreams: All About the Amazing Rise of the Sunshine Mega-State (Amazon, 2019).
Florida Dreams is available from Amazon.com.