Montgomery County, Maryland, would have passed a $15 minimum wage if is wasn’t for County Executive Ike Leggett.
Leggett, a Democrat, openly supports increasing the minimum wage. But when the county legislature narrowly approved a minimum wage hike last December, Leggett decided to veto it.
The 30 percent minimum wage increase had passed by a narrow vote of 5-4. In vetoing it, Leggett expressed concern about the potential negative impacts of such a quick move toward a $15 minimum wage, including the competitive disadvantage it could levy on the county.
Leggett called for a comprehensive study of how such a policy would affect the county.
The results of that study should cause Leggett and Montgomery County legislators not just to seek a slower pathway toward a $15 minimum wage, but to abandon all attempts to artificially increase wages.
The study noted that the market equilibrium minimum wage—which allows employers to attract workers—is about $11 per hour, fairly close to the county’s current $11.50 minimum wage. The proposed $15 minimum marks a 30 percent increase in what is many employers’ biggest expense.
If a family’s rent was set to increase 30 percent over the next three years, they would almost certainly have to find a cheaper place to live, or else significantly reduce other expenses.
Businesses are no different. They don’t have money trees they can pick from when costs skyrocket.
The economic impact analysis confirmed that while a $15 minimum wage would benefit some low-income workers, it would have much larger negative impacts on other workers, Montgomery County’s government, and its economy.
According to the three-organization “partnership team” the county contracted with to evaluate the fiscal, economic, and social impacts of the proposed $15 minimum wage, it would lead to:
- One of every three low-wage jobs lost. Montgomery County would have 47,000 fewer jobs in 2022. This means that one out of every three workers who currently earns less than $15 per hour (about 127,000 workers) would lose their jobs.
- Other worker losses. According to employers, the higher labor costs would not only cause 57 percent of them to make layoffs, but 63 percent would reduce hiring, 59 percent would reduce hours, and 52 percent of businesses would reduce benefits.
- Lower incomes. Even after accounting for higher incomes for a majority of low-wage workers, the substantial job losses would lead to a net $400 million decline in income in 2022 and $1.8 billion over the 2018-2022 period.
- Lower county revenues. Lower incomes would reduce county revenues by about $9 million per year, or $41 million over the 2018-2022 period.
- Higher county costs. County employment costs would rise by about $2.5 million per year, or $10 million over the 2019-2023 period. Additionally, the county would face higher costs for contractors and nonprofit social service providers.
- Welfare costs would likely rise. The report noted that workers who received a higher $15 minimum wage would still be eligible for the county’s social services, and newly unemployed workers would presumably require more in social services. Montgomery County already provides some of the most generous welfare benefits in the nation, and it is the only county to provide an earned income tax credit that serves to increase low-income workers’ wages.
- Fewer businesses. Many businesses indicated that the proposed $15 minimum wage would cause them to move outside Montgomery County or cease operations altogether. This would leave even fewer jobs for low-wage workers.
- Shift to automation. Higher employment costs could cause businesses to substitute away from more expensive low-skilled labor toward automation and other capital investments.
Although the study did not specifically address price increases, a $15 minimum wage would almost certainly lead to higher prices for goods and services at businesses that employ low-wage workers.
The largest price increases would likely occur on goods and services—such as groceries, fast food, gas, and clothing—on which lower-income individuals and families spend a higher portion of their income.
Regardless of its findings, this study should serve as an example to other policymakers of the right way to legislate: by seeking information and analysis before enacting monumental legislation.
Moreover, while the economic analysis is unique to Montgomery County (which has a high median income and close proximity to other states and jurisdictions), the findings should nonetheless lead all policymakers to reject efforts to interfere with market wages.
This piece originally appeared in The Daily Signal.