January 20, 2022

Florida TaxWatch Economic Commentary

The Impact of a $15/hour Minimum Wage in Florida

| 6/28/2016

The Economy and Everyday Lives of Consumers

Increasing the cost of labor, and thus the cost of operations, will force businesses to adapt. While this could include reducing staff hours, closing shop, or relocating, it will likely also lead to price increases for customers.

One example of labor costs being transferred to consumers can be seen in San Francisco, California. After the Bay Area enacted a plan to increase the city’s minimum wage to $15 per hour, fast food giant Chipotle responded by increasing the cost of menu items 10-14 percent in all the area’s restaurants.16 In response to the increase in prices, Chris Arnold, Chipotle’s Communications Director, stated that the increases were done “in part to offset higher labor costs.”17 The price increases are not just affecting burrito lovers. Data from the U.S. Bureau of Labor Statistics show that prices for dining out in San Francisco, California rose 4.8 percent over a 12 month period beginning in February of 2015,18 which is significantly higher than the 2.6 percent increase observed on the national level during the same period.19

With increases in the costs of goods and services, consumers are likely to react in a few different ways. For one, consumers can choose to do business in neighboring states that are not affected by high wage floors and therefore do not have to increase the cost of their products.20 In turn, local businesses that are not able to match the lower prices of their neighboring competitors would be at risk of losing customers. Secondly, consumers may choose to buy fewer goods in the market place due to higher prices,21 forcing businesses to close. If this were to happen, it could create a snowball effect of shrinking the market, therefore lowering the competition among businesses.

Conclusion

With many cities and states, including Florida, considering an increase in their minimum wage to $15 per hour, it is vital that taxpayers and policymakers understand the possible effects such an increase can have on the states’ businesses, job market, and economy. Early evidence has shown that even some of the most affluent areas in the U.S. have felt some negative effects, including an increase in unemployment and prices, after raising their wage floors. In a state like Florida, where the median wage is close to $15, an immediate increase in the minimum wage to $15 per hour would likely have negative effects on the state’s economy and job market. It is important that policymakers in Florida closely follow how businesses and economies in states like New York and California acclimate to increases in the minimum wage, and use the data to help make decisions regarding Florida’s minimum wage going forward.

16   American Enterprise Institute. Who’d a-thunk it? SF minimum wage increased 14% and local Chipotles just raised prices by 10-14%. 6 July 2015.
17   Entrepreneur. Chipotle Raises Prices in San Francisco After Minimum Wage Hike. 9 July 2015.
18   U.S. Bureau of Labor Statistics. Consumer Price Index, San Francisco Area. February 2016.
19   U.S. Bureau of Labor Statistics. CPI Detailed Report. February 2016.
20   Fortune. Seattle’s min wage is America’s highest, but here’s the downside. 6 June 2014.
21   NPR. Seattle Restaurants Scramble To Pay A Higher Minimum Wage. 9 May 2015.


FPL

Economic Commentary written by

Kyle Baltuch, MS, Economist

Robert Weissert, Executive VP for Research & Special Counsel to the President & CEO
Robert D Cruz, Ph.D., Chief Economist
Chris Barry, Director of Publications

Michelle A. Robinson, Chairman of the Board of Trustees, Florida TaxWatch
Sen. George LeMieux, Advisory Board Chairman, TaxWatch Center for Competitive Florida

Dominic M. Calabro, President, CEO, Publisher & Editor

Florida TaxWatch Research Institute, Inc.
www.floridataxwatch.org

 

Copyright © Florida TaxWatch, June 2016

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Tags: employment

 

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