Arkansas minimum wage, maximum pain?

Which U.S. state will have the highest minimum wage in 2021? You might guess California, New York, or Washington. But as they say, the answer will shock you: Arkansas, if voters approve a ballot initiative in the November election. This is more than a local story: If a deeply red state where Trump’s approval rating is 63 percent and Republicans control roughly three-fourths of the state legislature moves forward on this progressive policy, it can take hold any- where.

At $11 per hour, Arkansas’s wage would not be the highest in dollar terms, but it would be the highest in the way that matters: At over 70 percent of the state’s median wage, it will be slightly ahead of California in 2021. Currently Arkansas’ median wage—the amount earned by the person in the middle of the income distribution— is $14.82 (compared to just over $18 nationwide). An $11 wage in Arkansas, one of the poorest states in the country, is similar to a $15 wage in California, which they will have in 2022.

The percent of the median wage is more relevant because it tells us how many workers will be impacted and by how much. There has been a lot of research by economists on the minimum wage, but one this high is well outside of the range of anything studied before.

Here’s another way to think of it: Currently more than 25 percent of workers (about 300,000 people) in Arkansas earn less than $11 per hour. That’s right—about 25 percent of the workforce will be affected by this increase. By contrast, the Bureau of Labor Statistics reports that just 2.3 percent of workers nationwide are affected by the federal minimum wage. Proponents of increasing Arkansas’s minimum wage tout this as a feature: 25 percent of Arkansans will get a raise!

But is it really that easy? Anyone who has taken a basic economics course knows that as you raise the price of something (labor), the demanders (employers) want less of it. A legal minimum wage increases unemployment. Combined with the increases from 2015 to 2017 in Arkansas, the cost of some workers will increase by 50 percent in just 6 years.

Some recent research has cast a degree of doubt on that simple story. Since about 1990, there has been an explosion of new research on the topic. Some confirm the Econ 101 story, others suggest the unemployment effects are close to zero, and a small minority suggest that a higher minimum wage could actually increase employment.

So what’s the take away? If you are confused, you have many good economists as company.

In a 2015 survey by the IGM Forum of 40 economists at top universities, roughly equal numbers agreed and disagreed with the proposition that a $15 minimum wage will substantially lower employment. But the most common response was “uncertain,” given by almost 40 percent.

Two economists who are deeply involved in the research also disagree widely. David Neumark at UC-Irvine is perhaps the leading skeptic of increasing the minimum wage as a way to help workers. His foil at UMassAmherst is Arindrajit Dube, who thinks raising the minimum wage is worth any small costs. But in a 2013 interview with the Washington Post, they agreed on one thing: We have no idea what happens when the minimum wage gets above about 50 percent of the median wage.

Minimum wages increases are popular. Almost twothirds of Arkansas voters approved the last increase in 2014, and recent polling indicates 2018 will be no different. No state has had voters reject a minimum wage increase since 1996 (they have been approved 20 times).

One thing is certain. If Arkansas does increase its minimum wage to over 70 percent of the median wage, we will see a huge influx of a certain type of worker: labor economists. They will flock here to study whether and how much unemployment was caused by the highest minimum wage a U.S. state has ever seen.