Arkansas tests out effect of wages

Will minimum pay cut down poverty or derail state economy?

LITTLE ROCK, ARK.» 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 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 worried on a November morning. 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.

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. Denver Mayor Michael Hancock is interested in setting a minimum wage of $15 an hour for thousands of city employees and other people who work with the city, his office announced Tuesday.