What if Laconia had a $15 minimum wage?

LACONIA — As evidence of growing inequality of income has mounted, increasing the federal minimum wage to $15 per hour has gathered momentum as perhaps the most promising means of narrowing the gap between rich and poor, but in communities like Laconia, where hourly wages are relatively low a higher minimum wage carries the risk of reducing the number of jobs.

Minimum wages are set by federal, state and local statutes. Since 2009 the federal minimum wage has been $7.25 per hour. However, there are 29 states with minimum wages higher than the federal standard, 20 of which raised their minimum wages in 2014 and 2015. In 2011 the New Hampshire Legislature bound the state minimum wage to the federal minimum wage, which at $7.25 per hour is the lowest rate among the six New England states.

As The New York Times recently reported, economists estimate the likely impact on employment of increases in the minimum wage by applying the ratio of the minimum wage to the median wage, or wage in the middle of the income distribution. The higher the ratio of the minimum wage to the median wage, the greater the benefit to employees. At the same time, the higher the ratio, the greater the risk that employers will eliminate jobs to spare costs.

Most economists agree that "moderate" increases in the minimum wage pose no significant threat to aggregate employment, but there is no consensus about where the point lies at which the risk of shrinking employment outweighs the benefits accruing to workers. Some believe municipalities can manage raising the minimum wage to 50 percent of the median wage without significant effects on employment while many suspect a ratio of more than 60 percent would lead to significant job losses. Since median wages differ from place to place as well as from one sector of the economy to another the effect of an increase will also vary from place to place and industry to industry.

In other words, where wages are so low that the proposed minimum wage would more closely approach the median wage the risk that raising the minimum wage would reduce employment is greatest. Likewise, an increase in the minimum wage would be most likely to shrink employment in those sectors of the economy where wages are lowest.

According to data compiled by the New Hampshire Department of Employment Security, in 2014 the median wage in the state was $17.53 per hour. At $15 per hour, the ratio of the minimum wage to the median wage would be 85 percent, well above the threshold of 60 percent at which effects on employment are expected.

The median wage in the Laconia area, which includes the city and eleven towns — Alton, Belmont, Brookfield, Center Harbor, Gilford, Gilmanton, Meredith, Moultonborough, Sandwich, Tuftonboro and Wolfeboro — is $16.63 per hour. If the minimum wage increased from $7.25 per hour to $15 per hour, the minimum-to-median ratio would rise from 44 percent to 90 percent.
If the minimum wage were raised in two annual increments and the median wage rose by two percent a year, the minimum-to-mean ratio would be 87 percent.

At the same time, some 8,000 of the employees in the area— a third of the workforce — are employed in half--a-dozen sectors — art, design and media, healthcare support services, food preparation and service, cleaning and maintenance, personal care services and sales — in which the median wages are between 13 cents and $5.97 less than $15 per hour.

During the past two years the New Hampshire Legislature has rejected several proposals several proposals to uncouple the state minimum wage from the federal standard, raise the minimum wage to between $9 and $14.25 in two or three annual increments and thereafter provide for it to automatically adjust annually in pace with increases in the cost of living.

The New Hampshire Fiscal Policy Institute, which advocated in favor of the legislation raising the minimum wage to $9 in two steps, estimated that 75,760 employees, or 12 percent of the state's workforce would earn more — altogether $64 million more. The regional impact would vary. In the Lakes Region, including Laconia, Franklin and Conway, 6,540 employees, 12 percent of the regional workforce, would benefit.

If the median wage rose two percent a year, in two years a minimum wage of $9 per hour would represent a minimum-to-median ratio of 50 percent for the state as a whole and of 53 percent for the Laconia area, well within the range of 50 percent to 60 percent where many economists believe the benefits to workers outweigh to risks to employment. If the minimum wage were raised to $14.25, the minimum-to-mean ratio would be 64 in the state and 67 percent in the Laconia area.

Advocates of raising the minimum wage stress that the federal rate of $7.25 has lost nearly 25 percent of its purchasing power during the past 35 years and an increase to $9 would restore it without posing a significant risk to employment or the economy. However, for communities like Laconia, an increase to $15 would likely weigh heavily on employment and the economy.