Hoosier Economy A closer look: Examining the costs and benefits of raising Indiana’s minimum...

A closer look: Examining the costs and benefits of raising Indiana’s minimum wage


UPDATE: Recent income data from the United States Bureau of Economic Analysis show Indiana making little progress in putting more money in the pockets of working Hoosiers.

44 states saw their residents’ per capita personal income grow faster than Indiana’s. While the rest of the nation’s average per capita personal income grew at nearly 4 percent to $46,129, Hoosiers’ incomes grew significantly slower – 2.5 percent – and average incomes were more than $6,000 less at $39,433.

For years, Hoosier incomes have failed to pace the national average. In 2004, Hoosiers made 90 percent of the national average per capita income. In 2014, Hoosier incomes had fallen to about 85 percent of the national average.

Since 2004, income earned through investments and benefit transfers like Medicare, Social Security, unemployment insurance and Medicaid grew the fastest in Indiana.

In 2004, Indiana families earned $50,683 on average. That number fell to $45,766 in 2012. Since 2006, Hoosier median household incomes have consistently been down year-over-year. This legislative session, Senate Democrats have proposed increasing the minimum wage to $10.10 to arrest this trend and begin putting more money in the pockets of Hoosier families. Opponents of raising the minimum wage frequently point to jobs losses and the young age of those affected as reasons to block any measure. A closer look reveals raising the minimum wages positively affects nearly a quarter of the Hoosier workforce and disproportionally benefits women and workers older than 20 years old.

How many Hoosiers are affected by raising the minimum wage?

A study released by the Economic Policy Institute (EPI) examined the impact of raising the minimum wage to $10.10 by 2016 as proposed by the US Senate and provides a point of comparison for language being offered in the Indiana General Assembly. The study estimates Indiana’s workforce at 2,726,000 workers and of those, 23.4 percent would be positively affected by an increase in the minimum wage. That amounts to nearly 650,000 Hoosiers.

[Click] An interactive look at how many Indiana households earned $15,000 or less in 2013. A worker earning $7.25 an hour makes $15,080 annually.
Who benefits from raising the minimum wage?

Cutting against common perception, 87 percent of Indiana workers positively affected by an increase in the minimum wage are 20 years of age or older. Of the 637,000 workers impacted by a hike in the minimum wage to $10.10, 56 percent are women and more than 175,000 workers with children would benefit (that’s a total of nearly 300,000 Hoosier children living in more economically stable homes).

I make more than minimum wage, how does this help me?

Some workers making more than the minimum wage would indirectly benefit from an increase as employers adjust their pay scales to compete in the labor market. Known as the “ripple effect”, the EPI study estimates that more than 200,000 Hoosiers would indirectly benefit from a minimum wage hike, seeing their salaries increase to remain competitive.

What about businesses having to lay off employees to pay higher salaries?

A recent study from the nonpartisan Center for Economic and Policy Research (CEPR) examined analysis on the minimum wage and labor trends dating back to the early 1990s and concluded that minimum wage has “little or no discernible effect on the employment prospects of low-wage workers.”  Firms have a number of mechanisms to absorb the expense of higher wages like shifting the firm’s composition toward higher skilled workers, increasing worker productivity, reducing hours or simply accepting a smaller profit margin. The study argues the most significant benefit of a higher minimum wage is a reduction in labor turnover and the resulting cost savings to firms.  This lack of decrease in employment is demonstrated in another study reported in the Business Insider.   A 2011 survey of fast food restaurants in Alabama and Georgia asked managers how they offset costs with previous minimum wage increases.  Only 8% thought that firing current employees was at all important to make up for lost wages, instead management took several steps to increase efficiency and productivity to compensate for the higher labor costs.  The authors of the study write that If minimum wage laws have substantive effects on employment, these should be evident among the most-affected businesses, such as fast food restaurants.